Time for a vacation home in Tahoe? Part 3 of 3

This is the last in a series of three articles relating to the vacation home market here in Incline Village and Crystal Bay. The first two articles covered the subject of market values and location specifics.

Here we are looking to cover the concerns and benefits of having a second home and what to do with it when you are away. The IRS has 5 basic premises to determine if you might be triggering a taxable event.  On the flip side, there are some definite benefits to renting out your property.

1. If you rent out your house for 14 days or fewer during the year, you are not required to report the income. A benefit here is that there is no maximum on the amount you may charge for rent. The house is considered a person residence so you deduct mortgage interest and property taxes like normal.

2. If you rent out your house for more than 14 days, you become a landlord in the eyes of the IRS. You will have to report the rental income and the upside is that you can now deduct rental expenses. It can get complicated because you have to keep track of the time used for personal and the time it is rented.

3. If you use the property for more than 14 days, or more than 10% of the number of days it is rented, whichever is greater, it is then considered a personal residence.  You can deduct can deduct rental income up to the amount of rental expenses, but you cannot deduct losses.

4. The definition of “personal use” days is not well defined. Personal use may include use by family members or yourself.  A less than clear definition of personal use includes donation of the home to charities or when you rent at a less than market rate.

5. If you limit your use to 14 days or 10% of the rented time, the property is considered a business and tax benefits increase.  You can deduct expenses against income and possibly deduct losses up to $25,000 each year.  Once the home is at this tax level, you are allowed to differentiate your time spent at the property between leisure and maintenance.  Days spent at the property for maintaining the property do not count as personal use.

For disclosure purposes, it is important to note that we are not investment advisers nor tax specialists. The statements above are summarized from information provided by the IRS.  Any opinions herein are as licensed real estate brokers and we highly recommend contacting your CPA and/or investment professional for definitive answers.

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