Have you considered making extra income from your vacation home? If so, it can be as simple as signing up on a variety of travel websites and listing your dates of availability. However, there are also a few tax steps that you need to keep in mind as part of the process. By consulting with your tax preparer or accountant, such as Dennis O'Brien in Farmingda,e, NJ, you can determine the specific requirements for your situations. Below are just a few of the items to check off your list prior to opening the doors of your home to these potential renters.
The beauty of most of these short-term rentals is that if you meet two specific requirements, then you might not have to claim the income from the rental. However, if only one of these requirements is met, then the income will be considered taxable.
This rule also applies even if you only rent out a room versus your entire vacation home. Keep in mind, however, you cannot take any deductions for these rentals either. If you use a website, such as Airbnb or HomeAway, your income from your rental will be reported to the IRS. So if you do not report it, due to the 14-day rule, do not worry if you receive a letter from the IRS. Simply be prepared to show that it qualifies under the 14-day rule.
For the best results, consider your rental of rooms or your vacation home as a business right from the beginning. Track the dates you rented the property, as well as the days you used the residence yourself. This will be helpful if you go over the 14-day limit throughout the year. The number of rental days will then be used to assist you in dividing out the business and personal expenses incurred throughout the year, as can be determined by the number of rental days.
These potential deductible expenses include the mortgage interest, repairs to the property, cleaning or routine maintenance and even the insurance for the property. Therefore, you will want to track and have a running total of these expenses for your tax preparer.
There are also a variety of expenses that are deemed ordinary and necessary as part of running a rental business. So items such as new towels or gifts for incoming guests may potentially be deductible. Therefore, it is important to track all of these expenses throughout the year. The records will also be helpful in providing proof of these deductions to the IRS, if necessary.
A majority of these companies are required to withhold 28% of the rental income for taxes if you do not file a W-9 with them. Therefore, it is important to make sure that you file this right away before your first rental. This way, you can enjoy the rental income throughout the year, especially since most taxpayers do not land in the 28% tax bracket.
You will also be responsible for paying any income tax from these rental days, if no withholding takes place and you go over your 14-day limit.
Depending on your home’s location, you may have to collect occupancy or hotel taxes for your short term rental. As a result, these can vary depending on your state or local government. You are likely going to be responsible for collecting that tax and then submitting it to the proper tax authority, so it is important to get that information right away. The other point to note about this particular tax is that if you use one of the sites, such as Airbnb, they may handle that tax collection and payment to the tax authority for you. Be sure to investigate if your city or state is on their list before your first rental.
Finally, the 14-day rule really only applies to your rental income when you stay below that set limit. If you see your rental as a viable source of long-term income, then treat it as a business and keep those accurate records for tax filings.
Click on the link below to connect with a tax preparer or accountant at Coastal Business Services, LLC in Farmingda,e, NJ who can assist you in determining your potential tax liability for renting out your vacation home.
Dennis O'Brien