Income received from the rental of your vacation property or rental home should generally be reported on your federal taxes. However, if you rent the property a short time each year, you may not be to report rental income. The IRS offers these tips on how to report rental income from a vacation home as a house, apartment, condominium, mobile home or a sailboat:
Reporting Rental Income on Tax Return
- Rental Income and Expenses, Rental Income and certain rental expenses that can be deducted, and is usually reported in WS-E Supplemental Income and Loss.
- Limited House Rentals – When a holiday home used as a residence and rent it to others, you must divide the expenses between rental use and personal use and may not deduct the portion of rental expenses in excess of rental income. For example, if you live in the holiday home for 17 days and rents 160 days during the year, the property is considered used as residence and your deductible rental expenses will be limited to the amount of rental income.
- Special Rule for Limited Rental Use – If the home is used as a holiday home and the taxpayer rents it fewer than 15 days a year, it does not have to report the rental income. WS-A detailed expenses, can be used to report regularly deductible, such as qualified mortgage interest, property taxes and casualty losses personal expenses.
Examples of expenses that you may deduct from your total rental income include:
- Depreciation – Allowances for exhaustion, wear and tear (including obsolescence) of property. You begin to depreciate your rental property when you place it in service. You can recover some or all of your original acquisition cost and the cost of improvements by using Form 4562 (PDF), Depreciation and Amortization, (to report depreciation) beginning in the year your rental property is first placed in service, and beginning in any year you make improvements or add furnishings.
- Repair Costs – Expenditures made to keep your property in good working condition but do not add to the value of the property.
- Operating Expenses – Other expenditures necessary for the operation of the rental property, such as the salaries of employees or fees charged by independent contractors (groundkeepers, bookkeepers, accountants, attorneys, etc.) for services provided.
IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes)
IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). The brochure provides information about rental property, including special rules for personal use and how to report rental income and expenses.