Tax Talk: Rental Property Income & Deductions

Tax time can be tedious and tricky for most of us, and can be even more involved if you own a vacation rental home. While some rules and regulations are clearly stated, others are not so much. I’m certainly NOT A TAX EXPERT… but I’ll share what I do know, in hopes of helping you avoid any major tax reporting mistakes.

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Do I have to pay taxes on rental income?

Yes, all rental income must be reported on your tax return; and, for the most part, the expenses of managing your property can be deducted from your rental income.

What constitutes as rental income?

It seems like a silly question, but rental income includes more than just checks from your guests and tenants. It can also include security deposits, advanced rent payment, payments for breaking a lease, expenses paid by tenants, and goods or services received as a form of payment.

What can I deduct?

In general, you can deduct rental home expenses such as mortgage interest, property tax, home repairs, depreciation and other operating expenses.

*NOTE: Home repairs CAN be deducted, however, home improvements CANNOT. Refer to the IRS guidelines and/or your financial advisor to better understand your specific circumstances.

Oh yeah, make sure you have a book keeping system or at least bundle up your receipts and store them in a shoebox, whichever works best for you!

What if I use my vacation home and rent it out?

To fully deduct losses on your rental property, you cannot use the home for more than 14 days or 10% of the total days in which your home is rented, whichever is greater.  If you use the property more than the 14 day/10 percent limit, you can still deduct your rental home’s expenses, but only to the extent of the rental income received.

How do I calculate depreciation?

The IRS lists three factors that determine the depreciation you can deduct each year:

  1. Your basis in the property
  2. The recovery period for the property
  3. The depreciation method used

You can begin depreciating your rental property at the time it is placed “in service.” You stop depreciating the property when you have fully recovered your cost or basis, or when you stop renting it. Visit the IRS webpage “Depreciation of Rental Property” for more information.

Other Helpful Tax Links

Tips on Rental Real Estate Income, Deductions and Recordkeeping – IRS

Real Estate Tax and Rental Property – TurboTax

Tax Deductions for Rental Homes – HouseLogic

Susan McCallion About Susan McCallion

Meet "Your Favorite Redhead." Susan was exposed to real estate while young with her parent's 8 Re/MAX offices in Connecticut! In 2008, Susan and Jim became permanent Sanibel residents, starting McCallion & McCallion to bring a fresh approach to real estate.