A vacation rental is a temporary rental of a furnished apartment, house, or professionally managed hotel-condominium complex to tourists as an alternative to a hotel. This type of accommodation is popular in the United States and can range from high-end luxury properties to spare rooms in other people's apartments. Vacation rentals often come with a kitchen, giving travelers the opportunity to save money by cooking in-house rather than dining out for every meal. Tax rules for vacation rental properties can be complex, especially if you've never done so before.
Mortgage interest attributable to personal use of a vacation home that is classified as rental property does not meet the definition of qualifying residential interest for itemized deduction purposes. The pattern of use can result in better or worse tax outcomes, especially when you change your vacation home from personal residence statistics to rental property status or vice versa. Vacation rentals generally offer more competitive rates than hotels, as well as a more intimate and private setting. For vacation homes that are classified as rental properties, mortgage interest, property taxes, and other expenses should be allocated between rent and personal use based on actual days of rent and personal occupancy.
If you rent your property for 15 days or more a year, your vacation home rental business is considered a “business” rather than a rental real estate activity. The qualifying residence interest deduction is only allowed for mortgage interest on a vacation home classified as a personal residence. Vacation homes rented for more than 14 days a year usually file Schedule E with their income tax return. A simple Google search should be enough to help travelers find vacation homes in the destination of their choice.
Some vacation rental properties offer full service, similar to hotels, while others offer guests complete and total independence. Landlords hire property managers because managing a successful vacation rental property requires a lot of effort. Many professional vacation rental property management companies also have direct booking websites through which guests can book their properties. Homeowners who rent vacation homes can take advantage of certain tax benefits, making a second home more affordable.