With tax season upon us, individuals who own vacation condos must be certain they are able to claim every tax credit and/or deduction allowed them by law. The following is an excerpt from my book, Condo Living: A Guide to Buying, Owning & Selling a Condominium:
“There are specific limitations on the allowable business deductions available to a taxpayer who uses a vacation home for both personal and rental purposes. These limitations apply to individuals, S-corporations, partnerships, trusts and estates. The number of days that a vacation home is used for personal purposes, as compared to the number of days that the property is rented at fair value, determines the availability of tax deductions. As of the date of publication of this book, these rules may be summarized as follows:
Rule No 1: If the vacation condominium is used by the taxpayer for personal purposes for not more that fourteen (14) days during the taxable year, or for ten percent (10%) of days that it is rented at a fair price (if this is greater), then it is not considered the taxpayer’s “home.” In this case, tax deductions attributable to income derived from the rental of the property are not limited to gross income produced by the property.
Rule No 2: If the personal use of the vacation condominium exceeds the greater of : (a) fourteen (14) days; or (b) ten percent (10%) of the number of days during the taxable year that it is rented at a fair price, then it is considered the taxpayer’s “home.” In such cases, the tax deductions attributable to income derived from the rental of the property can not exceed the gross income generated by the property.
Rule No. 3: If the vacation condominium is the taxpayer’s “home,” and is rented fro fewer than fifteen (15) days during the tax year, any income derived from the rental during the tax year is not taxable, but the deductions attributable to income derived from the rental of the property are not allowed (the usual personal deductions for mortgage, interest and real estate taxes, however, may be taken).
Rule No. 4: If the vacation condominium is not the taxpayer’s “home,” as described under the vacation home rules, but the rental use is not an activity from which the taxpayer expects to make a profit, the taxpayer’s deductible rental expenses may not exceed his rental income, in the same manner as they are limited for a “home” under the vacation home rules. However, if the rental results in a profit during three (3) or more years during a period of five consecutive tax years, it is presumed by the IRS to be an activity engaged in “for profit.”
For more information on how to purchase Condo Living: A Guide to Buying, Owning, and Selling a Condominium, please visit www.meisner-law.com or call 800-470-4433.