The Solar Eclipse is Coming... Are You Considering Renting Out Your House? 4 Important Things to Know

Dec 6, 2016 | By: Hanna Ellis

Plan now for August 21st:

As campsites and hotels fill up in anticipation of the August 21, 2017, solar eclipse, ask yourself this: is my primary residence or vacation home located in that perfect spot to view the 2017 eclipse?

If it is and you decide to monetize your great location, there are some important things to know about renting out your vacation home or your primary residence. See the 4 scenarios below:

1. If you rent out your vacation home or primary residence for 14 days or less, there is great news: you don’t have to report any of that income on your tax return. You could charge $20,000 a night for a guest to stay during the Solar Eclipse, and you wouldn’t be taxed a penny. You would also be able to deduct your property taxes and mortgage interest on Schedule A, but you will not be able to deduct any other expenses (repairs, utilities, etc.) to create a loss.
   
   
2.  You must report your income if you rent out your vacation home for 15 or more days, but you can now deduct the expenses. To maximize your deductions, limit personal use to less than 15 days or 10% of the time it is rented out. You can deduct all of your mortgage interest, maintenance, insurance, utilities, and even depreciate your house and other more expensive items such as kitchen appliances, furniture, and a new roof. If your vacation home is used for business purposes, you can deduct up to $25,000 of your rental loss. Losses can’t be deducted if the home is classified for personal use (15+ days of vacation or more than 10% used for vacation).
   
   
3.  Say you stay in your vacation home for 50 days and you rent it out for 50 days. This constitutes 100 days of use, and exceeds the greater of 14 days or 10% of the rental days. Your deductions are going to be limited, and must be allocated to personal and rental. You are able to write off 50% (50 rental days divided by 100 total days used) of the rental expenses (utilities, maintenance, insurance, etc.). Your personal expenses (mortgage interest and property taxes) will go partially toward the rental, and you can deduct the rest of it on Schedule A. But remember, you can deduct rental expenses only up to the level of rental income (no losses).
   
   
4.  If you rent out a room in your personal residence (ex: Airbnb) for more than 14 days, income must be reported. The allocation of expenses is similar to that of a vacation home, but there is an extra step involved. First you allocate all of the expenses (utilities, insurance, etc.) to the room being rented out based on the square footage of your home. After that is performed, allocate expenses between rental and personal use. For example, say your house is 1,500sq ft., and the room being rented out is 500sq ft. This means 33% of all the expenses can be deducted. If you live in your home all 365 days and rent out your room for 50 days, then 13% of each prorated expense (33%) can be deducted.

If you are going to be renting your vacation home frequently, it would be advisable to keep a separate checking account so all of your expenses and income can be accumulated easily and in one location. It would also be important to keep track of the number of days you stay in your vacation home for personal use and the number of days you rent it to others. The same is true if you are renting out your personal property. It is important to keep good documentation of income, expenses, and rental days.

Key take away: determine your main purpose for your primary residence or vacation home, and determine which scenario above will give you the biggest tax deduction. And don’t forget to mark your calendars for the solar eclipse. Campsites and rental properties in prime locations will be in high demand.

Call our office today if you’d like help planning for your rental. 503-390-7880