Most income you receive is taxable income that is reported to you and to the Federal/State tax authorities. However, there are a few income-producing events that the IRS has said are not taxable. One of them is renting out your home or vacation property.
The rule: If you receive rental income for less than 15 days per year, that income is generally not taxable income.
Added benefit: In addition to tax-free rental income, you may still deduct your mortgage interest expense and property taxes as itemized deductions. Neither of these tax benefits is reduced with the income from up to two weeks of rental activity.
Would someone want to rent your property?
Sure it sounds good, but why would someone want to rent your property? Here are some ideas:
- A sporting event. If a big sporting event is in town, consider renting out your home for participants and fans. Common examples include:
- Football games
- Golf tournaments
- State high school tournaments
- College football and other college events
- Host foreign students/teachers
- Rent out your vacation home. If you have a cabin or cottage, consider renting out your place for two weeks. If you find responsible renters, you may have an opportunity to find reliable repeat renters each year.
- Vacationer alternative to hotels. Oftentimes travelers from other cities and countries would love to rent out homes or rooms within homes while traveling. This lets these travelers have a real “local” experience versus staying in a hotel.
Know the risks
The hassle factor needs to be considered prior to taking advantage of this free income opportunity. You should also understand the risks involved. Having a proper rental agreement, damage deposit, and insurance are key factors to consider. Also, remember to only rent out your property for up to 14 days. Rent received beyond this is taxable and rental income rules apply.
Thankfully there are a number of internet sites that can help you navigate through your options. Here are a couple of popular sites to find out more information.
- Vrbo.com (vacation rentals by owner)
- Tripadvisor.com (includes personal rentals with user feedback)
Do you have further financial questions about renting out your home or vacation property? Schedule a time with us here to discuss further: https://bas-pc.com/appointment-center/.