A friend asks to rent your vacation lake home for a week and is willing to pay you the going rate – do you have to claim this as income? If your property is “used as your home” even if only during the summer and you rent it for fewer than 15 days per year, you do not need to report the rent as income on your tax return. Renting a vacation home for fewer than 15 days per year is a great way to help offset the usually high lake front property taxes or possibly set some money aside for improvements!
If you do decide to rent your vacation home for longer than 15 days you will need to report your rental income and any deductible rental expenses on a Schedule E form, Supplemental Income and Loss which is then included in your income tax return.
As long as you personally use the property and only occasionally rent to others, special rules apply. One of the special rules states your expense deduction is limited and may not exceed the amount you received as rent. Therefore, you cannot take a loss because you rented your vacation home for more than the 15 day limit. In this scenario, you must divide any expenses on the property between the days you personally use the property and the number of days you rent to others. Even though you report the portion of the expenses you can allocate as a rental on a Schedule E, you still may continue to report any personal deductible expenses as long as you also personally use the property. The expenses which may be reported on your Schedule A, Itemized Deductions are any mortgage interest and property taxes associated with your vacation property.
While this may appear to be an excellent way to earn a little extra money to help offset expenses you also must take into consideration the fact that someone, even if a good friend, will be using your home as their own for a period of time. The extra money might sound like a good idea, but you must weigh all the factors involved including facing the reality if someone else is using your vacation home you cannot!
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