It may come as an unwelcome surprise to learn that we’re already approaching the midpoint of summer. While this is never really a welcome reality — especially for those of us who live in areas with long winters — the good news is that there is still plenty of time left for vacations and other warm weather activities.
In fact, there is still plenty of time for those who own some manner of vacation property to not just take a trip to their home away from home, but also rent it out to someone else looking to get away from it all.
While the notion of turning a profit on vacation property is undoubtedly an intriguing proposition, property owners will nevertheless want to keep a few tax considerations in mind before starting to post rental ads online.
Renting the property when you’re not there for much of the time
For many people, especially empty nesters, there’s a good chance that they now use the family cabin less and less often. In these situations, renting out the property is probably a welcome idea.
It’s important to understand, however, that income derived from the long-term renting of vacation property is subject to federal taxation. However, if the property owners meet certain requirements, this tax treatment is considerably more favorable.
Indeed, if they limit their personal use of the property to 14 days or less, or less than 10 percent of the time it is rented, they can deduct common rental expenses, such as cleaning/maintenance and property management fees, to name only a few.
This is significant, of course, as deductible rental expenses could actually end up exceeding rental income, thereby erasing any tax liability. Furthermore, rental-related losses can also be claimed.
Renting for a short period
Experts indicate that property owners who couldn’t imagine spending significant time away from their vacation spot still have a viable option for earning some income and securing favorable tax treatment.
Income derived from short-term rentals, meaning for 14 days or fewer, is tax-free.
As such, if a family cabin is rented for just one week during the summer for $3,000 or even $30,000, the money is not subject to federal taxation.
If you have questions or concerns about tax obligations owing to vacation property, or have encountered some sort of trouble with the Internal Revenue Service, consider speaking a skilled legal professional as soon as possible.