Some of us are lucky enough to own a vacation home and for them, vacation home taxes are probably something they’ve already dealt with. But for the rest of us that are just dreaming, or thinking of maybe getting a vacation home, here is how the taxes work.
There are of course special rules when it comes a vacation home. If you rent your vacation home when you’re not using it, there are limits to the amount of rental deductions that can be taken on a residence that is rented out for part of the year and used for personal purposes at other times of the year.
If your vacation home is rented out for less than 15 days during the year, the rental income is excluded from the gross income and no rental expense deductions are allowed. Deductions for regular expenses as part of all personal expenses are still available. Once you rent your vacation home out for more than 14 days in a year, the property will be considered either a personal residence, or a rental property.
The property is deemed a personal residence because the owner uses for whichever is greater of either 14 days, or 10 percent of the number of rental days. In this case rental losses are not deductible. If the rental expenses exceed the rental income, regular expenses such as mortgage, interest, insurance and taxes are deducted.
The opposite is true if the vacation home is rented for more than 14 days and the owner does not use it excessively for personal purposes. It will then be treated as a rental property and rental losses can be deducted.
Knowing the tax ins and outs of owning a vacation home can be a complicated process. If you are not sure about the taxation on a vacation home, it is always best to seek the advice of a tax professional.