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According to a recent survey conducted by Vacasa, North America’s largest vacation rental company, 44% of vacation homeowners say they have felt so overwhelmed preparing taxes, they’ve requested an extension.
Luckily, Vacasa has helped to simplify the process with a user friendly vacation rental tax guide. These high-level tips for vacation homeowners are certainly no replacement for a knowledgeable CPA, but can help answer commonly asked questions.
There are two forms that are applicable to vacation rentals: an IRS Schedule E and an IRS Schedule C. When considering which is the correct form, it’s easiest to think about the income being generated by the property. If the property is generating supplemental income, but isn’t necessarily a full-time gig, a Schedule E is likely the way to go. If it’s a primary business activity, Schedule C should be used to file vacation rental taxes.
For either document, you’ll need to have a list of documented expenses, all 1099s filed reporting contractor payments, property usage schedule, and gross rental income.
The amount of time you use the property will have an impact on what you can write off. In simplest terms, the 14-day rental rule means you don’t pay taxes on the income you receive from your short-term rental if BOTH of the following are true: A) you rent out the property for less than 14 days and B) you use the property for 14 days or more. However, if you rent the property out for more than 14 days and use it yourself for less than 14 days, taxes can become more complex.
You should keep a log of each day the property was in use, and include a breakdown of vacation rental days, personal use days and days used for repairs and property maintenance. This will help the IRS determine whether the property is rented for more than 14 days per year, and thus, how much you are able to write off. Another important note: tax deductions vary by state, but in all cases require a receipt for each expense deducted, so make sure they have a file - preferably digital - to keep track.
A lot goes into maintaining a property and while it may seem that all upkeep is assigned to one category, there are actually two when it comes to your taxes: improvements and repairs. Repairs, like fixing loose banister or a broken window, can be written off, however, improvements to the home, like updating an old bathroom, are handled differently. Instead of being written off in the year of the expense, they are deducted over the use of their lifetime. While this may sound complicated, homeowners should still include when filing as it is indeed tax-free income.
Having a property management company caring for your vacation home has a multitude of benefits. A full-service vacation rental property manager won’t just clean and maintain your property, they’ll also handle the paperwork and logistics for the state sales and hotel taxes, and give you the information you need for state income taxes on your rental. If you choose to self-manage, keep the above tips in mind when filing taxes.
Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual's legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, CPA, and/or other advisor regarding your specific situation. The information provided here is for your use and convenience only. We have taken reasonable precautions in the preparation of this material and believe that the information presented in this material is accurate as of the date it was written. However, we will assume no responsibility for any errors or omissions. We specifically disclaim any liability resulting from the use or application of the information contained in this publication.
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