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Tax Tips for Rental Property


Uggh. Taxes. For those of you doing your taxes this weekend or at least putting the paperwork together here’s some tips from the vacation rental Web site www.HomeAway.com. It’s a reminder that if you’ve got an investment property or second home you can rent out, even if it’s sinking in value, it’s still a tax deduction gold mine. To those of us that don’t own investment property, this could turn out to be a great time to buy. I hope the long list of expenses doesn’t discourage you.

“The tax rules and deductions for second homeowners who rent out their properties on a short-term basis are complex,” says Christine Karpinski, director of Owner Community for HomeAway.com. “Deductions depend on many factors, including how often you personally use your second home, how many nights or a percentage of the nights you rent out your home, and your personal adjusted gross income. It’s a lot of information, and as with most big undertakings, it’s best to dive right in.”

Here’s some tips from Karpinski:

1) Figure out your gross rental revenue. Your gross rental revenue would be all monies collected from renters (and kept). This includes:

Base rental rate

Cleaning fees

Parking fees

Amenity fees

Pet fees

Any portion of a security deposit that you keep

2) Then tally up your possible deductions:

o Property taxes

o Property insurance

o Hurricane/wind/flood insurance

o Liability insurance

o Mortgage interest

o Private mortgage insurance (PMI)

o Refinance and/or closing fees

Homeowner’s Association

o Dues

o Special assessments (may be amortized under capital improvements)

o Travel expenses to attend meetings

Operating Expenses

o Utility bills, including power, gas, water/sewer, phone, cable/satellite TV service, Internet service, etc.

o Housekeeping expenses

o Expenses incurred to repair damages

o Out-of-pocket payments/deductibles for insurance claims

o Maintenance expenses, including pest control, lawn and garden upkeep, preventative maintenance, etc.

o Extra compensations to renters, housekeepers, maintenance (including holiday gifts/bonuses)

o Linens and linen cleaning services

o Supplies, including paper towels, toilet paper, cleaning supplies, etc.

o Travel expenses to your vacation home to do maintenance (must be well documented)

o Meals while you are in your vacation home on “maintenance trips”

o Property management fees and commissions

o Home office expenses, including computer equipment, furnishings, utility bills, etc. based on the percentage of business use vs. personal use (usually a portion based on the percentage of square footage of your home office—for example, if your home is 2,000 square feet and you have a 200-square-foot home office that you use solely for your vacation rental business, then 10 percent of your household expenses may be tax deductible)

Advertising Expenses

o Your ads on HomeAway.com, VRBO.com, CyberRentals.com, or any other website or advertising vehicle, including any special offers, extra photos, etc.

o Business cards and other printing costs

o Website building and hosting expenses

o Photography, virtual tours, copywriting services

Capital Improvements and Amortized Items

o Improvements on your home

o Furnishings and décor

o Depreciation deductions

o Tools (hammers, saws, etc.)

o Cameras, computers, cell phones, and other equipment necessary to run your vacation rental business

Other Expenses

o Checking account and credit card account administrative fees (for business purposes only)

o Postage for mailing contracts, directions, security deposits, etc.

o Legal fees

o Delivery of your “vacation rental hometown” newspaper

o Income tax preparation

o Educational expenses—seminar attendance and/or books about renting your vacation home


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