Many Georgia residents often travel during the summer months, and some choose to rent out their homes while they are away. While renting a residence temporarily can provide an additional and welcome revenue stream, failing to properly record and disclose this source of income can have serious tax implications. Tax must be paid on rental income even if the property being rented out was used as a taxpayer’s primary residence for most of the year, but declaring this income also makes certain expenses tax deductible.
A dwelling can be a home, condominium or even a boat or motor home according to the IRS. Any rental income earned on a dwelling that has also been used as a residence must be declared on a Schedule E form, and high earners may be required to pay a net investment income tax in addition to regular income tax on this kind of rental revenue.
Expenses related to the rental property should be listed on a Schedule A form. Allowable expenses include property taxes, mortgage interest and casualty, disaster and theft losses. The IRS is not concerned about casual or short-term rentals, and this income need not be reported if the property concerned was rented out for less than 15 days during the year.
Failing to pay taxes can lead to financial penalties, asset seizures and wage garnishment, and even innocent mistakes can be punished severely. Attorneys with experience in this area could help their clients to avoid common pitfalls, and they could also negotiate with the IRS on their behalf. During these negotiations, attorneys could seek to avoid draconian sanctions by working out payment plans for their clients or submitting offers in compromise to reduce their tax burdens.