How Your Vacation Home Can Affect Your Taxes
If you are one of the people who are considering investing in a second home to use for the purposes of vacationing, it is important to consider how this type of purchase would impact your tax returns. Keep in mind, a vacation home is merely considered any property that may be considered “permanently in place”. Therefore, it is fairly common for people to purchase recreational vehicles, or even boats and consider them vacation homes. What many people are unaware of is the IRS may also consider these purchases as a vacation home provided they have a permanent location.
Personal Use and Tax Deductions
If your vacation home is for your personal use, you can use nearly the same deductions you claim for your personal residence. This includes mortgage interest, property taxes, and in some cases, you may also qualify to deduct home office expenses. There is even a way to make a bit of money on your vacation home on a tax-free basis. The IRS will allow a homeowner to rent their home for a maximum of 14 days annually without claiming the income on their taxes. Any additional days would subject the owner to taxation on rental income and the loss of the property being designated as purely a vacation home for personal use.
Vacation Home Rentals
For some taxpayers, using their vacation home as a rental may provide a dual opportunity. First, there are tax deductions available such as repairs, maintenance, and insurance. Using your vacation home as a rental means you will have to deduct the rental payments; however, doing so may also provide you an opportunity to pay the mortgage off earlier than you might otherwise be able to do.
Document Relevant Expenses and Income
Whether you decide to use a vacation home as a rental, only for your personal use, or a combination of both, make sure you document all expenses and income. This is particularly true if you have not made a decision at the beginning of the tax year about how the home will be used. Tracking all income and expenses beginning immediately can also help your tax preparation expert ensure you are getting all deductions and benefits of owning a second home.
Whether you own a second home in a popular vacation area, a recreational vehicle or boat that doubles as a vacation home, you may gain specific tax benefits. Talk to a tax professional at Rue & Associates if you are uncertain as to what deductions you are entitled to. We have years of experience helping residents of Central Virginia in Mechanicsville, Richmond, Hanover, Henrico and surrounding areas with all types of tax issues. We can help make sure you are getting all the tax benefits associated with owning a second home.