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Discussion:Vacation rental income and expense

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Discussion Forum Index --> Tax Questions --> Vacation rental income and expense


Schenckdmm (talk|edits) said:

24 March 2014
Two brothers own a vacation home they rent out part of the year and split the income and expenses. They rented 22 days.

Income was $4000 and expenses were 3000 which they would split to be income 2000 and expenses 1500.

If they didn't use any time for personal use would you do 22/365 = .06, then use 1500 x .06 ?

How would it be different if they for example used 20 days for personal use?

Obviously, I need to learn more about vacation rentals but thought someone could help with this for now. I have researched renting the home partially but not clear with it.

Thanks,

Wiles (talk|edits) said:

24 March 2014
Hi Schenckdmm,

Please refer to Pub 527 Chapter 1 for your 1st question. Then Chapter 5 for your 2nd question.

Schenckdmm (talk|edits) said:

24 March 2014
That's the two chapters I looked at, but still wasn't sure of my two questions above, if someone would let me know their thoughts on them.

Wiles (talk|edits) said:

25 March 2014
From Chapter 1: "In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income.

Personal use of rental property. If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use."

As part of your due diligence, you should ask why only rented 22 days. Was it available for rent all year? Were the owners actively trying to rent it, i.e. is there a profit motive?

Taxmonkey (talk|edits) said:

25 March 2014
"In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price."

Was the dwelling unit used for 365 days?

Do your expenses include mortgage interest and real estate taxes or are you asking about mortgage interest?

Pub 527 has a nice worksheet to help you understand the issues.

Nightsnorkeler (talk|edits) said:

25 March 2014
Also you may consider using the Tax Court (Bolton) method of allocating mortgage interest and real estate taxes if there is benefit to putting more of these expenses on Schedule A as a second home.

Wiles (talk|edits) said:

25 March 2014
Taxmonkey is quoting from Chapter 5 which is the chapter that assumes there is also personal use.

Ckenefick (talk|edits) said:

25 March 2014
If you read Chapter 6, Verse 31 (Gospel of Markb), it says this about vacations:

And he said unto them, Come ye yourselves apart into a desert place, and rest a while: for there were many coming and going, and they had no leisure so much as to eat.

Wiles (talk|edits) said:

25 March 2014
And from Bolton: How am I supposed to carry on when all that I've been livin' for is gone

Spell Czech (talk|edits) said:

26 March 2014
"In general, your rental expenses will be no more than your total expenses..."
In general, never completely trust an IRS explanation that starts out "In general..."
And the same goes for "In most cases..." too, in most cases.

Nilodop (talk|edits) said:

26 March 2014
And he said unto them, Come ye yourselves apart into a desert place, and rest a while: for there were many coming and going, and they had no leisure so much as to eat. There are apparently many versions of this. Here are some: http://biblehub.com/mark/6-31.htm

My personal favorite is "Let's take a short break. There's a Dunkin' Donuts around here somewhere."

Smokeytax (talk|edits) said:

26 March 2014
Great discussion - starting my day off with a smile - thanks!

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