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Vacation rental tax deductions

Tax Deductions for Rental Property

Profits and Losses on Vacation Rental Homes

The rent you collect from your tenants counts as income. You offset that income and lower your tax bill by deducting your rental home expenses including depreciation. For example, you received $10,200 in rent during the year and had expenses of $3,200, then your taxable rental income would be $7,000.

You can even write off a net loss on a rental home as long as you meet income requirements, own at least 10% of the property, and actively participate in the rental of the home. Participation in a rental can be as simple as setting rental rates or reviewing prospective tenants.

If your adjusted gross income is $100,000 or less, you can deduct up to $25,000 in rental losses. The deduction for losses gradually phases out between income of $100,000 and $150,000.

Vacation rental tax deductionsTax Rules for Vacation Homes

If you have a vacation home that’s mostly reserved for personal use but rented out for up to 14 days a year, you won’t have to pay taxes on the rental income. Some expenses are deductible, though the personal use of the home limits deductions. The tax picture gets more complicated when, in the same year, you make personal use of your vacation home and rent it out for more than 14 days.

As a vacation rental property landlord there are many tax deductions for property expenses to offset your rental income. Check the IRS Publication 527 for all the details. Save your receipts and other documentation, and take the deductions on Schedule E. Figure on average you’ll spend four hours a week maintaining your rental property, including record keeping.

You can claim deductions for the year for these typical rental property expenditures:

  • Rental Agency Commissions
  • Taxes, including property taxes
  • Cleaning and home maintenance
  • Insurance premiums
  • Mortgage interest
  • Utilities
  • Advertising
  • Association and condo fees
  • Legal fees

Travel Expense Deductions

You can also deduct expenses for travel such as showing the property or doing home maintenance. If you use your own car, you can claim the standard mileage rate, plus tolls and parking. For 2018, it’s 54.5 cents per mile. If you mix business with pleasure during the trip, you are only allowed to deduct the portion of expenses that directly relates to rental activities.

Repairs and Improvement Deductions

Homeowners should be cautious when itemizing expenses for repairs vs. improvements. Homeowners can write off repairs, any fixes that keep your property in working condition, but improvements which add value must instead be depreciated over several years.

Depreciation

Depreciation refers to the value of property that’s lost over time due to wear and tear. Depreciation is a valuable tax benefit, but the calculations can be difficult. You may need to consult a tax adviser.

This article provides general information about tax laws and consequences but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.