As we enjoy this fall season, it is important for vacation rental owners to continue to increase investment income. Maximizing tax benefits and understanding deductions can significantly boost off-season rental income. Let’s look at ways to make your vacation property work harder for you year-round.
Tax Benefits (and Pitfalls) of Vacation Rental Properties – Let’s Maximize the Good!
While owning a vacation rental property can bring in more revenue streams, it can also have tax benefits (and some pitfalls), too. Carolina Retreats is committed to helping you maximize the good when it comes to revenue income and tax benefits.
The tax treatment of rental property expenses depends on whether the taxpayer also used the property as a home in the year. According to the IRS, a vacation rental property is considered a home of the taxpayer, if they also used the property as a home during the year for personal purposes more than 14 days OR 10% of the total number of days the property was rented at fair value. Count it as personal use if you allow family and friends to use it and/or you donate the use of the home for charitable purposes. Days used primarily for repairs and maintenance are not counted toward personal use.
Di Minimis Rental Use
If you rent your vacation home out for fewer than 15 days per year, you don’t have to claim that as income on your tax return.
Limit on Deductions for A Mixed-Use Vacation Property
You must allocate your expenses between personal and rental usage. Allocations to personal expenses generally are not tax-deductible.
Property owners should keep careful records for their personal use of the home throughout the year. For a lot of people, vacation rental property is a viable investment choice because of its potential for capital appreciation, regular and predictable cash flows, and its inherent qualities as a tax shelter. In many cases, a vacation rental can generate positive cash flow and at the same time create a non-cash loss for tax purposes via depreciation deductions.
Vacation Properties That Are Exclusively Rentals Allow for Greater Tax Benefits
If your vacation property is exclusively used as a rental, there are numerous deductions you can claim on your tax returns including property taxes, insurance, mortgage interest, utilities, housekeeping, and repairs. Even towels and sheets can be deductible. And you can also write off depreciation, the value lost over time due to the wear and tear on a home.
Always treat an exclusive vacation rental as a business. Keep detailed records and maintain a separate checking account. Figure you'll spend a couple of hours a week, on average, over the course of the year managing the property but that can be reduced, if you allow Carolina Retreats to manage it for you.
Be sure to check with a tax advisor for specific deductions.
Visual Storytelling & Social Proofing Your Home
Whatever you do to maximize your income from your vacation rental home, think about your guests and potential visitors. Consider having one of our experts from Carolina Retreats come to your home to gather great photos and videos and for visual storytelling and social engagement and interest. We can also help you understand where to increase your investment without changing any physical aspects of your vacation home.
Carolina Retreats offers a full-service property management solution that includes dynamic pricing, a dedicated staff and experts who have years of real estate management experience and expertise, and our marketing and promotions, property care, premium guest services, and our comprehensive reporting and communication will maximize your vacation rental property income and ensure that you receive the right reports to generate the tax benefits.
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