Personal Use of Rental / Vacation Rental Tax Traps and Planning

Vacation Rental Traps

If you are currently renting out your Primary or Secondary Home or using a Rental Property to vacation, then make sure that you are aware of all the tax rules and tax traps.

Self-Employment Income Tax Trap typically rental income is not subject to Self-Employment Taxes. But if you provide any additional services to the renters such as daily housekeeping or concierge services then the income become subject to Self-Employment Taxes. Reference IRS Ruling 57-108. Ultimately finding that “if services are rendered for the occupants and the services rendered (1) are not clearly required to maintain the space in a condition for occupancy, and (2) are of such a substantial nature that the compensation for these services can be said to constitute a material portion of the rent, then the net rental income received is not excluded under § 1402(a)(1) and is included in NESE.”

Personal Use Deduction Limitations If you also use your rental property as a *”Residence”, meaning more than 14 days OR 10% of the time the property is rented, then you will be limited on your rental deductions for that property. Important, some of the disallowed rental deductions might be deductible as elsewhere on your tax return such as itemized deductions.

Planning Tax Free Rental Income Special rule for minimal use of residence that you rented property fewer than 15 days. You do Not have to report Rental Income or Deductions if the property was rented less than 15 days. Important, some of the disallowed rental deductions might be deductible as elsewhere on your tax return such as itemized deductions.

Real Estate Professional Best of both worlds. With this rare and desired tax status you will get the benefit of ordinary income and losses not subject to self-employment taxes. IF you are designated as a Broker/Dealer then your tax classification will change dramatically in terms of Self-Employment Tax. For more information Reference IRC 469

If you own or manage Rentals or active Real Estate Broker/Agent, we are here to help you along the way. Meet your New CPA Today! Schedule Intro Consultation here.