Who isn’t excited about a new home? Whether you are a first-time homeowner like Julie and Sandra or an experienced homeowner, the fun of buying a new home remains unparalleled. And what better news than to learn that buying a home also brings along with it some tax advantages.
This week we’ll discuss some tax tips for the homeowner. If you’re a first-time homeowner or if you haven’t owned a home in the past two years, maybe buying a house, taking out a mortgage, and moving are at the forefront of your mind. If you have owned a home for more than a year, you already know the tax benefits of owning a home. Here are some of the different types of deductions available on your federal tax return because you own a home:
Vacation Home Rentals
If you rent a home to others, you usually must report the rental income on your tax return. But you may not have to report the income if the rental period is short and you also use the property as your home. In most cases, you can deduct the costs of renting your property. However, your deduction may be limited, if you also use the property as your home.
Following are some basic tax information that you should know if you rent out a vacation home:
A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss.
If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes), or speak with a tax professional.
If you personally use your rental property and rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.
Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair market rental price is also personal use.
Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. It’s TAX FREE, no matter how much you receive!
Also remember to keep receipts, settlement statements, and any other purchase documents, when buying, improving, or refinancing a home, for as long as you own the home, plus seven (7) years. The expenses, or costs, prove your basis (what you paid) for the property. This will reduce or eliminate any taxes owed on profits made when you sell the house. Keep these purchase or home improvement receipts in a safe place, so you will have them to show your tax professional and possibly the IRS; if you are audited or questioned.
Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.