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Brilliant Deductions for Vacation Homes
Everything Second Homeowners Need to Know about Saving on Their Taxes
It's tax time again! If you own a second home that you rent to vacationers, you're probably not looking forward to scurrying around trying to figure out how much rental income you collected last year. (The more you made, the more you'll pay to Uncle Sam, right?) But vacation home rental expert Christine Karpinski advises you not to procrastinate much longer. Why? Because the process will yield information you'll need to claim deductions against your rental income on your state and federal income tax returns – so the more thorough your search, the more you'll save.
"The tax rules and deductions for second homeowners who rent out their properties on a short-term basis are complex," says Karpinski, director of Owner Community for HomeAway.com. "Deductions depend on many factors, including how often you personally use your second home, how many nights or a percentage of the nights you rent out your home and your personal adjusted gross income (AGI). It's a lot of information, and as with most big undertakings, it's best to dive right in."
Karpinski, the author of How to Rent Vacation Properties (Kinney Pollack Press, 2007) and Profit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment (Kaplan, 2005), says most vacation homeowners are better off using a tax accountant or tax attorney to prepare and file their income taxes.
"Unless you have a strong background in accounting, it's too easy to miss something critical," says Karpinski, adding that all the details can be found in the IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes). "But that doesn't mean you can't save yourself lots of money by doing some thorough legwork before heading out to the tax preparer's office."