5 Tax Return Questions for Vacation Rental Homeowners

It's tax season! Most people find the process of filing your taxes cumbersome if not downright confusing. This is especially true if you own a vacation rental property. So, we've done our best to answer a few questions... keep in mind that we are NOT Tax Professionals.

1. Do I have to report my rental income?

If your property was rented for more than 14 days, yes, you must report your vacation rental income on your tax return. 

2. What counts as rental income?

The gross income of all rent money received. The IRS does provide one exception regarding security deposits. If you return security deposits to guests/tenants, this is not included. If you keep a portion of the security deposit, you should include this as part of the income.

3. What can I deduct?

Vacation rental homeowners can deduct repairs, operating expenses, depreciation, property taxes, and mortgage interest on their tax returns. 

PRO TIP: Remember to also deduct forgotten about expenses like the cost of advertising, cleaning, pest control, lawn care, and any service fees charged by sites like Airbnb. 

4. Can I deduct home improvements?

No. You can only deduct the cost of repairs to your property, not the costs of remodels or improvements. The IRS describes improvements as, “A rental property is improved only if the amounts paid are for a betterment or restoration or adaptation to a new or different use.”

5. Can rental income loss be deducted?

Yes! But, of course, there are stipulations. CPA and TurboTax expert, Lisa Greene-Lewis says, “You may be able to deduct rental income losses up to $25,000 if you actively participate in your rental when rental expenses like utilities, property taxes, and associated mortgage loan interest exceed the gross rental income."

Final Thoughts

We hope this provided some valuable insight for vacation rental homeowners, or those thinking of purchasing a vacation rental home in the future. As always, we suggest you research your questions on the IRS website,  or ask a tax professional for help with your specific situations. Happy accounting! 

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