|Greetings to all as we have put summer behind us and head into fall. Today’s topics include record retention, vacation rentals, as well as some updates and reminders.
Frequently, public accountants are asked, “How long should I keep (insert document here)?” Seems like a simple question that would have a simple answer, but many times that simple question results in that typical accountant answer of “Well, it depends…”. Whether it’s personal financial and tax information, legal documents, insurance contracts, or business-related documents and records, individuals and businesses should know the appropriate amount of time to retain their records. The list of documents and records to consider can be quite vast. Click here for a fairly comprehensive list provided by the Better Business Bureau.
The onset of the COVID-19 pandemic has resulted in some curveballs for owners of vacation rental homes. Owners are faced with issues such as increased personal use due to many other activities being cancelled, additional efforts to sanitize between bookings, cancellations, or actually having increased business due to vacation rentals being seen as less risky than hotels. With these new challenges, we thought it’d be a good idea to highlight some to of the tax rules for owners of vacation rental properties. Below are five rules to consider.
- If you rent out your home for 14 days or fewer during the year, you are not required to report the rental income on your tax return. The home is considered a qualified personal residence so you deduct mortgage interest and property taxes just as you would for your primary home. On the downside, you also cannot take depreciation, utilities, cleaning or any other expenses you would be able to take for rentals reported on your tax return.
- If you rent out your house for more than 14 days, you become a landlord in the eyes of the IRS. You have to report your rental income and rental expenses are now deductible. It can get complicated because you need to allocate costs between the time the property is used for personal purposes and the time it is rented.
- If you use the home for personal purposes for more than 14 days or more than 10% of the number of rental days, whichever is greater, the home is considered a personal residence. You can deduct rental expenses up to the level of rental income. But you can’t deduct losses.
- The definition of “personal use” days is fairly broad. Personal days may include any days you or a family member use the house (even if the family member is paying rent). Personal days also include donated use of the house — say, to a charity auction — or days rented for less than fair market value. If you are staying in the house to make necessary repairs or to ready it for rental, you may not have to include those days as personal days, but you should be aware of the specifics before assuming any action would or would not be considered a personal use day.
- Generally, if you limit your personal use to 14 days or 10% of the number of days the home is rented, it can be considered a rental business for tax purposes. You can deduct certain expenses and, depending on your income, you may be able to deduct up to $25,000 in losses each year.
Please contact us to determine the tax treatment of your vacation rental.
Updates and Reminders
October 15th Deadline – We just wanted to send a reminder that the extended due date for C-corporation returns and individual returns is October 15th. Please don’t hesitate to reach out to us with any questions.
2020-2021 Per Diem Rates – If you missed it in our last publication, the IRS has recently issued the 2020-2021 per diem rates. The rates are effective from October 1, 2020 through September 30, 2021. You can read more about them here.
Your Bertz, Hess & Co. tax and business advisor will be happy to discuss any of these topics.