If you’re lucky enough to own a vacation home, you already know how great it is to have a place like this to retreat to. And as the summer begins and families start to rush to the beaches, mountains, and other destinations, you might start thinking about renting out your vacation home as a source of rental income. While many vacation homeowners take advantage of this, there are essential guidelines to follow and responsibilities to meet. See below for some of the most important aspects of renting out your vacation home.
The number of days you rent out your home is important.
14 total days or fewer a year
Renting out your vacation home for 14 days or fewer during a calendar year means you don’t need to report the rental income on your tax return. In this case, the house is considered a personal residence — giving you the ability to deduct the mortgage interest and property taxes just as you would for your primary home. There is also no limit on the amount you can charge a renter.
15 total days or more a year
Here, the home is considered a rental property and you are the landlord. Essentially, the home is viewed as a business — which means you have to report your rental income to the IRS. However, you can generally deduct rental expenses, but you’ll need to factor in the amount of time you use the property for personal use versus rental use. The rental expenses you may be able to deduct include mortgage interest, property taxes, casualty loses, insurance premiums, maintenance, utilities, and depreciation.
The term “personal use” means a number of different things.
According to the IRS, a day of personal use can be considered any day that is used by:
· You or any other person who has an interest in it, unless you rent your interest to another owner as his or her main home and the other owner pays a fair rental price under a shared equity financing agreement
· A member of your family, or of another person’s family 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 a fair rental price
Keep tabs on other legal requirements.
First, make sure you can legally rent out your vacation home. For instance, most homeowners associations (HOAs) don’t allow short-term rentals, and some cities and counties forbid them as well. You’ll also need the proper vacation rental insurance. This will cover the risks associated with structural damage and the contents of the rental property.
Also, there may be additional legal requirements if the property is part of a rental pool. You can learn more about rental pools and the guidelines you may need to follow here.
Just like any property, caring for it takes work.
People expect a lot out of their vacations — therefore, their expectations are that much greater when it comes to the home they are staying in. Vacation rentals are generally short-term stays, which means you’ll likely need to be available during check-ins and check-outs — and if property issues arise. You also need to account for wear and tear and getting the home cleaned and ready to go for your next guests. Being the landlord of a vacation rental can require more of your week-to-week time than if you were renting out a home on a year-to-year basis.
Yes, using your vacation home as a short-term rental isn’t as easy as sticking a “for rent” sign in your front yard, but it can be a smart financial move for you. Just make sure you follow every aspect of these guidelines.
There’s no better time than right now to start prepping for the summer ahead, especially if you have children. Give this a read — Summer Survival Guide: Plan Now and Relax Later.
Ditech is not a financial advisor and the ideas outlined above are for informational purposes only. They are not intended as investment or financial advice and should not be construed as such. Consult a financial advisor before making decisions regarding important personal financial matters, and consult a tax advisor regarding the deductibility of interest and tax implications.