Investing in a vacation home can serve many purposes for individuals, whether that be a personal escape to a tranquil destination, an additional source of income, or a little bit of both. How an owner uses their vacation home impacts the amount they pay in taxes and what they can deduct. When searching for Skaneateles Lake houses for sale, review this information when deciding if the cost of property taxes is worth the investment.
Determine vacation home use
Vacation homeowners should establish how they’re using their Skaneateles Lake home before purchasing the property to better plan out what deductions they’re eligible for. There are strict regulations owners must abide by to correctly apply to deductions. To ensure compliance, it’s always best to work with a professional like Ellen O’Connor, who can answer specific questions unique to your situation. Here’s a review of how homeowners can use their vacation home.
Personal residence
The purpose of personally used homes is the enjoyment of the home by the owner. A home that’s used for personal use includes properties that are used for more than 14 days or 10% of the total days that it’s rented out at a fair rental price. In this case, any rental income that doesn’t break time usage rules doesn’t have to be recorded, and no rental deductions can be made. Homes that aren’t personally used or rented out may be considered investment properties and qualify for different deductions.
Mixed-use
A mixed-use property refers to a property that is rented for more than 15 days or over 10% of the total days. When applying for rental deductions, homeowners must prorate the rental use time by dividing the rental days by the total days used for personal use.
There are a few things to remember when using a vacation property for mixed-use. The first is properly categorizing personal use. Personal use time includes use by a person with ownership interest, by family members, by a person paying less than fair rental value, and by people using the home under a home-exchange arrangement. This excludes employers providing lodging to employees.
Homeowners must also determine if the home qualifies as a residence when deducting costs. Residences must provide a sleeping space, cooking facilities, and bathroom facilities. Residences are also used for a set amount of time. Mixed-use properties that don’t qualify as residences may qualify for deductions equaling more than rental income earned.
There are a few things to remember when using a vacation property for mixed-use. The first is properly categorizing personal use. Personal use time includes use by a person with ownership interest, by family members, by a person paying less than fair rental value, and by people using the home under a home-exchange arrangement. This excludes employers providing lodging to employees.
Homeowners must also determine if the home qualifies as a residence when deducting costs. Residences must provide a sleeping space, cooking facilities, and bathroom facilities. Residences are also used for a set amount of time. Mixed-use properties that don’t qualify as residences may qualify for deductions equaling more than rental income earned.
Rental property
A Skaneateles Lake home is considered a full-time rental property when owners limit personal use to two weeks or less or to under 10% of the time rented each year. In this case, rental income is taxable by the federal government. Those with rental properties are eligible for many more deductions related to maintaining the property.
Deductions for vacation rental homes
Vacation rental homes feature many different opportunities for deductions, including costs from property taxes. Here are a few of the most common deductions vacation renters apply for.
Property taxes
Costs related to property taxes count towards business expenses and can be deducted as such with very few restrictions. Properties that are officially designated as vacation rentals are particularly eligible for property tax deductions.
Maintenance fees
Any fees related to a property’s maintenance can also be deducted by homeowners. If owners hire a professional cleaning service to keep the property clean after renters, they can deduct the cost of services and supplies. Any repairs like a leaky faucet or roof issues can also be removed, as long as it’s restoring the property to its original condition. This means that owners can’t write off home upgrades.
Maintenance also includes purchasing rental supplies, furniture, and appliances. Anything from bed sheets and pillowcases to a refrigerator or couch can be deducted from yearly expenses. Owners can also deduct rental insurance, which is especially valuable as many insurance fees for vacation rentals are high.
Maintenance also includes purchasing rental supplies, furniture, and appliances. Anything from bed sheets and pillowcases to a refrigerator or couch can be deducted from yearly expenses. Owners can also deduct rental insurance, which is especially valuable as many insurance fees for vacation rentals are high.
Management costs
Costs needed to manage the property can be deducted as well. If a homeowner hires a property manager to handle guest services, scheduling, and marketing, any commissions count towards tax deductions. This also includes any services used to market the property on sites like Vrbo and Airbnb. Even the cost of hiring an accountant to file personal taxes can be deducted under the right circumstances.
Other deductible costs
There are several other deductible costs when renting out a vacation property. Keep track of these fees throughout the year for the biggest savings.
- Transportation via car or plane for business-related reasons
- Property depreciation
- Utility bills, including water, power, and internet
- HOA or condo association fees
- Mortgage interest (as a business expense)
Deductions for personal use vacation homes
Buyers planning on using Skaneateles Lake houses for sale for personal use have fewer tax deductions available to them. Even so, they can make a big difference at the end of the year. Here are some common deductions for personal use vacation homes.
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Mortgage interest deduction: Vacation properties used personally qualify for a mortgage interest deduction. The maximum deduction allowed for loans secured after December 15, 2017, is $750,000 or $375,000 for married couples filing separately.
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Real estate tax: Vacation homes also qualify for real estate tax deductions. These include personal property taxes, real property taxes, and state and local income taxes. However, state and local tax deductions are limited to $10,000 or $5,000 if married and filing separately.
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Casualty loss: vacation homes qualify for deductions from casualty losses if they’re within a presidentially declared disaster area.
Ready to buy a vacation home?
Vacation homes can be difficult to finance when accounting for expenses like property taxes, but owning a vacation home also comes with financial perks. Vacation homes used as rental properties qualify for several deductions, which makes it easier to afford. Personally used properties may qualify for fewer deductions, but any rental revenue can be kept untaxed. If you’re ready to search for vacation properties in Skaneateles Lake or have more questions, partner with a professional like Ellen O’Connor.
