Renting Out Your Vacation Home - Some Things You Should Know
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 influx of 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 is set to inform you about some things you should know before renting out your vacation homes.
It is almost impossible to venture into any form of business without considering taxes. Taxes for different categories are treated differently. Different types of taxes come with different forms, rates, and requirements.
This is definitely the case of second homes. Rental income can be reported on section E, Form 1040. You need to meet a certain condition by the IRS for your vacation home to be taxed. Your short-term rental has to 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 is less than your rental expenses.
The IRS permits up to $25,000 worth of deduction from rental loss. There is also a list of other items that you can fill in for tax deductions in your tax returns.
For those that are not wanting to bear the burden of marketing, maintenance, and screening of guests, property managers do the work for them. The fees pertinent to property management can easily be categorized as income deductions.
There have been various complaints regarding the cost of property management over the years with fees being upwards of 35%. Fortunately, there is property management software that 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.
If you meet the requirements for your rental home to be considered a business, then mortgage interest can fit in as a deduction.
Provided that you are paying 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 when it comes to 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.
A home office deduction can amount to $1500. For this to be qualified 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 as long as you meet the requirements.
The process of 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 of renting your vacation home, then you are good to go.