Your Vacation Rental Tax Guide: 4 Important Tax Facts

Jul 12, 2021Real Estate Tax0 comments

vacation home tax

Your Vacation Rental Tax Guide: 4 Important Tax Facts

There are plenty of perks to owning your own home away from home – it’s the perfect getaway, and can turn a tidy profit as a rental property! But what if we told you that we could help you get even more out of your vacation property? With our vacation rental tax guide, you will be able to stay on top of opportunities to save with the right tax planning. Keep reading to pick up some pro tips from our experienced tax advisors!

Vacation Rental Tax Facts

Basic Breaks

1. Pass-Through Tax

Some of the most common questions we get involve the pass-through tax deduction – and for good reason, considering it could allow you to deduct up to 20% of your rental income! However, this can be an easily overlooked opportunity for landlords who are new to the game. Simply put, if you own a rental property via pass-through entities, you may be eligible to deduct up to 20% of your rental income. This may also be the case if it’s a sole proprietorship (meaning you individually own the property), or if you own it through a partnership or limited liability company. Considering the amount you could save, this is definitely a planning opportunity to hash out with your tax advisor! 

2. Property Tax

As the owner of your vacation or second home, you are responsible for the property tax. Generally speaking, a property tax is a tax on real estate; the local government will assess the amount to tax based on the location and how much the property is worth. That being said, you can usually deduct up to $10,000 of your property taxes on your tax return ($5,000, if you are married, filing separately.) However, if you run your vacation property as a rental business, that $5,000-$10,000 cap may not apply! In other words, you could save some serious dough on your property taxes, if you qualify for this break! Either way, it’s definitely worth discussing with your tax advisor.  

Vacation Rental Tax Facts

Business Breaks

3. Business Expenses

There is a lot that goes into maintaining your vacation home rental business, including maintaining the property, itself! As such, you should definitely make sure you are fully aware of your deductions, which include “ordinary and necessary” expenses. As an example, when you travel overnight for your rental business, you can deduct expenses like transportation, meals, and accommodations on your tax return. That’s why it’s that much more important for you to have a top-notch bookkeeping process, so you can provide well-documented proof of these as business expenses when tax season rolls around! 

4. Marketplace Fees

As you probably already know, businesses like Airbnb or HomeAway have become some of the most popular ways for vacationers to plan their getaway stay! If you are renting out your vacation or second home through such a vendor, there will probably be some marketplace fees you as the property owner will need to take care of. Most of these rental companies will involve costs like host service, annual subscription, and pay-per booking fees that you will need to pay. However, in most cases, you can deduct these marketplace fees on your tax return, so it’s important to keep detailed records of these expenses for your tax advisor!

Vacation Rental Tax Hack

If you rent your home out for a minimum of 14 days, or you reside there for more than 14 days, you may be exempt from income tax on your rental earnings!

Our wide range of experience throughout the real estate field is what makes our tax team top-notch at what we do for our clients. Whether you’re the landlord of one vacation home or a several properties, we can help you develop the right tax planning strategies to help you meet your current and future goals. If you’re ready to learn more about what our tax advisors can do for you,  give us a call at (972) 771-6707 or visit our website today!

We're Your Vacation Rental Tax Team

Our advisors are well-versed in the real estate world, and we can help you tackle your vacation rental taxes, while planning for the future!

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