A vacation rental is the temporary rental of a furnished apartment, a house or a professionally managed hotel-condominium complex to tourists as an alternative to a hotel. The term vacation rental is used primarily in the U.S. UU. If you rent the vacation property at fair market value for more than 14 days a year, the IRS considers you a landlord.
In that case, your rental costs can be deducted proportionately to the use of the property as a short-term rental. The amount you can deduct is determined by dividing the number of days you rented the property by the combined total of personal use and rental days. For example, a landlord whose property is used 100 days a year, 75 for rentals and 25 for personal use, can deduct 75% of eligible expenses. Deductions cannot exceed the total amount of rental income, which is reported in Schedule E of your 1040 along with rent-related expenses.
You won't have to file Schedule C or pay self-employment taxes unless you provide important hotel-like services for guests, such as cleaning or breakfast, Gorczynski says. In contrast, vacation rental agencies manage bookings and billing on behalf of the landlord, and there is no direct contact between the guest and the landlord. In that case, your vacation home rental business is considered a “business” rather than a rental real estate activity. When a vacation home is rented for a period of more than 28 days, it is sometimes referred to as a “monthly” or “seasonal” rental.
Some vacation homes may be considered investment properties, but not all investment properties are vacation homes. That until now, access to these resort and condo complexes was available exclusively through purchase options, such as wholly owned, fractional or timeshare, they now offer daily vacation rentals. Vacation rentals generally occur in privately owned vacation properties (vacation homes), so the range of accommodations is wide and inconsistent. Vacation rental permit holders collect and remit the municipal transient occupancy tax (currently 11.5%) on all paid short-term stays.
This is because homeowners are more likely to save the primary residence than the vacation home when the property faces an auction. Even in months when the vacation rental operator has no income from short-term rentals (either because the home was not rented, owner-occupied, or rented by a long-term tenant), permit holders must file a TOT return. Under these agreements, vacation rental managers buy every week that the landlord wants to rent in a single transaction. If a vacation home is rented for 15 days or more per year, rental income must be reported to the internal revenue service (IRS) using Schedule E.
For more information on offering residential properties for rent, see Publication 527, Residential Rental Properties (Including Renting holiday homes). The IRS requires vacation homes to be used for 14 days and 10% of the number of days the property is rented.