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Tax implications of vacation home rentals

With the advent of such services as “HomeAway,” “HomeToGo” and “Air BNB,” more and more people than ever before are offering their homes for short-term rentals. The usual arrangement is that property owner will stay at another location, and will allow strangers to use the home for a fee.

These short-term rentals can prove to be very profitable, particularly if they are centered around a particular event, like a big game, fair, festival, or holiday. Many people prefer staying in a home or apartment rather than a hotel, just because of the ease of access to cooking, the privacy, and the inherent comfort level of knowing that only one other person has been there before you.

While the transaction seems like a simple one for the property owner, there are actually tax implications:

  • Home type matters – whether the home is a vacation home or primary residence makes a difference for the ability to deduct taxable income and maintenance/repair/solicitation expenses. Designation as a “home” puts limits on deduction of rental-related expenses; they cannot exceed rental income.
  • Types of eligible residences vary – any manner of dwelling could qualify as a rental property, including homes, mobile homes, apartments, condos, and boats.
  • Special considerations – if the home is rented for fewer than 15 days in a calendar year, income doesn’t need to be reported, and rental expenses aren’t eligible for deduction
  • Personal use is ineligible – use of the rental property personally by the owner(s), or by family, friends, or anyone not charged fair rental value does not qualify for deductions.

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