Continuing with our recent discussion about preparing for tax season, I wanted to spend some time this week covering issues related to paying taxes on vacation homes. Many homeowners in the Jersey Shore area use their property as a vacation home – but can these homes truly be claimed as vacation properties? This article from RealEstateJournal.com answers this and other important questions, such as:
- When and under what circumstances do I have to pay taxes on rental income?
- What sort of deductions can owners of rental properties take?
- If my vacation home is considered a secondary home (not a rental home), what deductions can I take?
Once you have determined which category your property qualifies as, the chart below gives you a quick overview of what you should expect during tax season:
|Vacation-Home Category||Rental Income||Deductions||Losses|
|Masters||not taxed||not available besides mortgage interest and property taxes||no tax benefit|
|Secondary||taxed||available||may possibly report a loss if mortgage interest and property taxes exceed rental income; but can’t carry the loss forward or backward to apply to another tax year.|
|Rental||taxed||available||can carry losses forward, or back|
Other helpful links on this topic:
- IRS Publication 527: Residential Rental Property
- IRS Tax Topic 415: Renting Residential and Vacation Property
- IRS Publication 925: Passive Activity and At-Risk Rules