Virginia Beach is a popular vacation destination. If you own a home here, and you’re renting it out to paying travelers, it’s essential to familiarize yourself with the pertinent tax ramifications.
To fully understand taxes as they relate to vacation home rental expenses and income, you must first consider the number of days the property is rented out compared with the extent of personal use. In the eyes of the IRS, whether you have relatives coming to stay or you’re putting up non-relatives at a price below the current market rate, both are considered personal use. This is the case even when you charge relatives the full market value for use of your property.
As to the amount of time the vacation home is used as a rental, income tax rules only come into play if the property is rented 15 days, or more, a year. Regardless of how much rent you may collect, if the property is used as a vacation rental for 14 days or fewer per year, it does not affect taxable income.
House rentals stretching beyond the 15-day threshold are when tax rules and personal use questions come into play. In these cases, when your personal use of the home is less than 15 days or less than 10% of the rental days, expenses should be allocated to personal days or rental days. You may be eligible to claim a loss, if applicable. It’s when personal use of the property reaches 15 days or greater and more than 10% of the rental days that the tax consequences get tricky. In this scenario, after allocating expenses to personal days vs. rental days, you deduct allowable taxes and interest first, deduct maintenance and cash expenses after that, and then depreciation until you arrive at a zero net. You are not eligible to claim a loss.
Needless to say, this is just a quick overview of how tax rules affect vacation home rentals. For the full story on tax law as it relates to renting out your home in the Virginia Beach area, turn to the tax help professionals at Taxation Solutions, Inc. Make us your destination for tax answers you can trust!