Whether you vacation on the beaches of Monterrey or in the mountains of Tennessee your home condominium boat or other living quarters may be subject to reporting on your federal income tax return if you rent that home to others. In most cases you can deduct the expenses of renting your property which include mortgage interest real estate taxes casualty losses maintenance utilities insurance and depreciation but your deduction may be limited if you also use the home as a residence.
A dwelling is said to be used as a personal residence if it is used for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days it is rented to others at a fair rental price. It is possible to use more than one dwelling as a personal residence. For example if you live in your primary residence for 11 months that is a unit of personal residence. If you live in your vacation home for the other 30 days of the year your vacation home is also a dwelling unit used as a personal residence unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.
Using a dwelling unit for a day of personal use is considered any day that it is used by:
- You or any other person who has an interest in it unless you are renting your interest to another owner as his or her main home under a shared equity financing agreement.
- A family member or a family of any other person who has an interest in it unless the family member uses it as his or her main home and pays a fair rental price.
- Anyone under an agreement that lets you use some other dwelling unit.
- Anyone at less than fair rental price.
If you use the dwelling unit for both rental and personal purposes you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. However you will not be able to deduct your rental expense in excess of the gross rental income limitation (your gross rental income less the rental portion of mortgage interest real estate taxes casualty losses and rental expenses like realtor fees and advertising costs). However you may be able to carry forward some of these rental expenses to the next year subject to the gross rental income limitation for that year. If you itemize your deductions on Form 1040 Schedule A you may still be able to deduct your personal portion of mortgage interest property taxes and casualty losses on that schedule.
You do not have to report any of the rental income or deduct any expenses as rental expenses if you use a dwelling unit as a personal residence and rent it for fewer than 15 days.
For more information on rental home taxation contact Lindemeyer CPA for a consultation today.