Vacation Home

Statistics revealed that Airbnb’s revenue reached 3.38 billion U.S. Dollars in 2020. This proves how profitable vacation homes have become. More than ever, people have been investing in vacation homes as there has been obvious growth in the industry.

Perhaps this high demand for vacation homes has made you consider diving into this business and getting a piece of the pie. Before venturing into any investment, proper knowledge is required. This article will inform you about things you should know before renting your vacation home. 

It is almost impossible to venture into any business without considering taxes. Taxes for different categories are treated differently, and different types of taxes have different forms, rates, and requirements.

This is the case of second homes. Rental income can be reported in section E, Form 1040. The IRS requires that your vacation home meet certain conditions for it to be taxed. Your short-term rental must be rented out for over 14 days in a year for it to be considered taxable. 

You might be wondering, what is the case for deductions? You might experience rental losses as a vacation rental owner. Rental losses occur when your gross rental income exceeds your rental expenses.

The IRS permits up to $25,000 worth of deduction from rental loss. There is also a list of other items you can fill in for tax deductions in your tax returns.

Property management:

For those who do not want to bear the burden of marketing, maintenance, and guest screening, property managers do the work for them. The fees pertinent to property management can easily be categorized as income deductions.

Over the years, various complaints have been made regarding the cost of property management, with fees being upwards of 35%. Fortunately, property management software makes this easier and more affordable.

A management tool like this is perfect for hosts and/or property managers seeking to rent out and properly manage multiple vacation homes. They provide marketing and management services at no cost to you.

Mortgage interest:

If you meet the requirements for your rental home to be considered a business, then mortgage interest can be a deduction. 

Marketing:

If you pay for your vacation home to be advertised on social networks and OTA’s, those fees can be deductible on your tax returns. Since this is considered a business under the law, it fits as a business expense.

Renovation of property:

Things can get a bit complicated regarding deductions on property renovation. In late 2018, the IRS amended the law and considered a couple of things to be deductible. The IRS included alarm, ventilation, heating systems, security, roofs, and fire protection as appropriate deductions. 

Home office:

A home office deduction can amount to $1500. To qualify this as deductible, you must prove that your home is used for business. Then, you can factor in the cost of equipment used for work, utilities, internet, and gadgets. These can be written off as deductions if you meet the requirements. 

Renting your vacation home can get a bit complicated when dealing with taxes. Not to worry, ensure a good grip on your income, and scrutinize expenses and deductions. If you stay on the right track with the law and follow key strategies for renting your vacation home, you are good to go.