Vacation homeowners may be eligible for certain tax advantages that can make their holiday home more affordable. According to the Internal Revenue Service (IRS), a vacation property can be rented for up to two weeks (14 nights) annually without having to report rental income. In many counties, towns, and cities, local authorities attempt to regulate or prohibit vacation rentals due to complaints from local residents or rival accommodation companies. Additionally, a large 21% portion of unsold inventory, and thus still managed by the resort, is available as vacation rentals. Homeowners who rent out vacation homes can take advantage of certain tax benefits, making a second home more affordable.
Vacation homeowners have specific rules that must be followed so that the landlord can deduct expenses related to rental property. You can deduct legal and professional expenses (such as tax return preparation costs) and any expenses that have been paid to resolve an underpayment of taxes related to your vacation rental. Furthermore, if you still have a loan for your vacation rental business, you lose the tax protection you would otherwise have on other types of returns. A timeshare may still be available as a vacation rental if a landlord decides to put their own week(s) into a vacation rental program. Another major concern is that people can create fake accounts and advertise vacation homes that they don't actually own.
For instance, if you have a large mortgage on your primary residence and you pay high property taxes, there may be no room left to deduct mortgage interest or property taxes from your vacation home. I didn't know that the landlord of the vacation rental can only be on their property 14 days throughout the year. My biggest worry about using a vacation rental was that my wife and I had to see landlords every day. The fundamental principle of federal income tax for a mixed-use vacation home that is classified as a personal residence is that deductible expenses assignable to the use of rent cannot exceed gross rental income.