Whether you operate alone or through a rental agency, here are seven important tax recommendations that every vacation home owner should consider.
What you will discover:
Tip 1:Keep accurate, separate records of your income and spending.
Tip 2: Learn about occupancy taxes.
Tip 3: Report income as needed, even if you do not have a 1099 form.
Tip 4: Take advantage of any applicable tax breaks.
Tip 5: Take advantage of the Tax Cuts and Jobs Act’s restricted tax deductions.
Tip 6: Provide a completed W-9 form to rental platforms Tip 7: Determine whether your rental activity conforms with the 14-day guideline
Seek help when you need it to understand and comply with your tax requirements.
If you rent out your house or another property to tourists, whether you manage the arrangements yourself or utilize a popular third-party rental agency, the money is certainly taxed. Fortunately, there are small company tax deductions, credits, and other tax planning options you may use to reduce your taxable business revenue. We have created a list of seven crucial tax recommendations that every vacation home owner should be aware of.
Tip 1.Keep accurate, separate records of your income and spending.
It is tempting to dismiss your vacation rental revenue as a side hustle. However, unless you qualify for a limited rental use exemption (see Tip 7, below), your revenue is taxed, and you should consider it as business income. This includes keeping track of revenue received as well as receipts for costs spent. These may include marketing charges, fees paid to listing organizations, cleaning and maintenance costs for rental reasons, and any other costs associated with your property. Separating your rental income and costs from your own spending can make tax preparation simpler.
Tip 2: Learn about occupancy taxes.
Some municipal tax authorities, like hotels, levy short-term lodging or occupancy taxes on vacation rental units. Investigate if your town collects occupancy taxes so you can guarantee you are up to date on your payments. whether you use a third-party booking site, check with them to see whether they collect and remit these taxes for you so you do not overpay your local tax authorities.
Tip 3: Report income as needed, even if you do not have a 1099 form.
If your rental revenue is less than a specific amount, the main third-party listing and booking services may refuse to deliver 1099 forms to property owners (according to the firms’ internal restrictions). Unless an exemption exists, you must submit your income to the IRS as well as any state and local tax authorities when filing your income tax forms.
Tip 4: Take advantage of any applicable tax breaks.
In general, you may deduct company costs, decreasing your total taxable income. Property management fees, insurance, mortgage interest, property taxes, occupancy taxes, credit card loan interest, leasing fees, host service fees, platform fees, and other costs may be included. You may still be able to deduct expenses if you rent a room in your house. However, when computing the amount for tax deduction purposes, some costs may need to be divided between business and personal usage depending on the number of days allotted to each use.
Tip 5: Take advantage of the Tax Cuts and Jobs Act’s restricted tax deductions.
The Tax Cuts and Jobs Act of 2017 added new tax breaks for some eligible small company owners. These tax breaks will be phased off in 2025. However, you may be eligible for a pass-through company tax deduction of up to 20% of net rental revenue, deductions for major renovations to your rental property, and a bonus depreciation deduction for personal property used in a business until that time.
Tip 6: Provide a completed W-9 form to rental platforms.
If a property owner fails to deliver a completed IRS Form W-9 to the provider, certain rental host platform providers will automatically deduct and pay to the IRS up to 28% of the property owner’s rental revenue. If you are required to complete and submit the form, doing so on time may assist guarantee that you are not unwittingly providing the tax authorities with a short-term loan in the form of overpayment of taxes during the year.
7th Tip: Determine if your rental activity adheres to the 14-day limit.
Finally, certain holiday rental property owners may be able to avoid paying income tax totally if their rental activity follows IRS guidelines controlling rental property that is being utilized for personal purposes by the property owner.
According to IRS Topic No. 415, property owners are not required to report or pay tax on rental income if they rent their property (or even a room in a home) to others for 14 days or less during the tax year and also use the property for 14 days or more, or for at least 10% of the total days it is rented to others at a fair rental price. Any property owner who rents out their vacation home for 15 days or more throughout the year is required to pay taxes on the money earned.
Seek help when you need it to understand and comply with your tax requirements.
Without a doubt, the tax situation for small company owners is perplexing. Underreporting your company revenue or failing to meet all relevant tax duties may result in serious fines, so it is critical to thoroughly grasp the rules and prepare ahead of time to satisfy them.
