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Vacation homes and potential tax considerations

On Behalf of | Aug 25, 2017 | Income Taxes

Many Georgians own vacation homes and might wonder if they might face tax consequences if they choose to rent them out when they are not using them. It can be smart to recoup some of the expenses that people incur with the maintenance costs, mortgages and property taxes of vacation homes through renting them when they are not in use. However, the owners should be aware of the ways that the IRS treats rental income that is derived from such rentals.

The Internal Revenue Service allows homeowners to deduct the interest on the costs of acquisition of up to $1 million for both their main residence and their secondary residences, including vacation homes. The owners may also claim the property taxes that they pay as itemized deductions on their tax returns.

If the homeowners and their families use their homes more than 14 days per year and rent it out for fewer than 15 days annually, the rental income does not need to be reported. However, this means that they will not be able to deduct any associated advertising or cleaning expenses that might be incurred from the short-term home rental. If the homeowners or immediate family members stay in the homes for the greater of more than 14 days or 10 percent of the number of days that the property is rented, and the home is rented out for more than 14 days in a year, the owners must report the rental income on their returns.

Taxpayers who own vacation homes and other assets that might incur additional taxes might want to consult with experienced tax law attorneys for advice about how to minimize the taxes that they might have to pay. Attorneys may identify deductions for which their clients might be eligible and structure their holdings in such a way that their tax burdens might be minimized.