Newswise — Soaring real estate prices make owning and maintaining a vacation home an expensive endeavor. There is however tax information that every homeowner should be aware of if they want to make their vacation property pay.
The most common practice is for homeowners to rent out their vacation home for part of the year. "If the taxpayer rents out the vacation home for more than 15 days during the year, AND does not personally use the home for more than 10 percent of the rental days, the home is considered primarily for rental use," explains Rick Sherman, LL.M., J.D., a professor of accounting at Saint Joseph's University.
Sherman says that in this case, not only are the real estate taxes and mortgage interest deductible, but all of the expenses related to the home (e.g. utilities, insurance, maintenance, as well as a depreciation charge) are deductible. This is true even if these expenses are greater than the rental revenue from the property.
Opportunities also exist for homeowners who choose not to rent out their vacation property. "Even if the taxpayer does not rent the vacation home, he/she can always deduct the real estate taxes on his/her tax return," explains Sherman. "Similarly, if this is a 'qualified residence' (a taxpayer can have two qualified residences - a primary residence plus one other that is personally used for more than 15 days or 10 percent of the rental days), the mortgage interest is also deductible."
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