If you have Tennessee vacation real estate, you may consider renting it out occasionally to cover some of the expenses. However, if you get something wrong, you can set off alarms with the IRS – something you definitely don’t want to do. So, if you’re thinking about renting out your Tennessee real estate, here are a few things you need to know:
- If you don’t feel like claiming rental income on your taxes, you can’t rent the vacation home out for more than fourteen days in a year. Instead, you treat it as a personal residence and just deduct your mortgage interest and property taxes. If you want to be able to deduct your rental expenses, you can rent the home for more than fourteen days. However, if you do, you then step into the world of being a landlord. This also means you have to report the income gained from the rent. Once a landlord, you’ll have to keep track of how much you use the property for personal use and how often you rent it out, then figure the costs for each.
- If you rent the home out for more than fourteen days, but live in it more often than you rent, it’s still your personal residence. As a personal residence, you can take out rental expenses that are less than, or equal to, your rental income. So, if your yearly rental income is $20,000, you can claim up to $20,000 of your rental expenses on your taxes, but you can’t deduct your losses. If you rent the home more than you live in it, it’s a business. As a business, you can claim your expenses and, possibly, as much as $25,000 in losses per year.
The IRS uses the term “personal use”, but personal use is a somewhat broad term. The days of personal use that go towards the “10% more than renting” can include any day that you or family members are using the house. Personal use also includes the time that a family member is renting the home from you, you rent it out for less than it’s worth or you donate the use of the house.
If you decide to rent out your vacation home, make sure you do you research, talk to your real estate agent, accountant or attorney and have all your t’s crossed and i’s dotted. If you’re knowledgeable, that vacation home may just pay for itself!
If you’re looking for a great vacation home or rental property, I can help. Call me at 423-488-1882 or email me firstname.lastname@example.org for more information.