Renting your vacation home or even a room in your own home can be as simple as signing up on a website and listing the days your rental is available. However, this also means that you will some tax responsibilities as well. Working with your accountant or tax professional, such as Allan J Rolnick in Forest Hills, NY, you can be sure that you have maximized these for your personal circumstances. Here are a few tips to keep in mind as you rent out that vacation home.
Keep Those Records
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, based on the number of rental days you have.
These expenses include the mortgage interest, repairs to the property, cleaning or routine maintenance and even the insurance for the property.
There are also a variety of expenses that are deemed ordinary and necessary as part of running a rental. So items such as new towels or gifts for incoming guests can be considered 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.
File Your W-9
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.
The 14-Day Rule
The beauty of most of these short-term rentals is that you do not pay income tax if you meet specific eligibility requirements. So it is important to keep both of these in mind as you are planning out your rentals for the year.
This rule also applies even if you only rent out a room in your 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.
Collect and Pay Those Taxes
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.
Another important tax that will need to be paid is your self-employment taxes. Depending on how many rentals you have during the year, and what amenities you provide, the IRS may consider you self-employed in the vacation rental business. Therefore, it is important to work with your tax professional or accountant to determine how much of your income is covered by self-employment and make the necessary quarterly payments.
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 the office of Allan J Rolnick in Forest Hills, NY, who can assist you in understanding your documentation requirements and any tax liability you may have incurred.
Allan J Rolnick, CPA, CTC