Tax Rules For Renting Your Malibu Beach House

by ritasimpson on June 25, 2012

in Vacation Rentals

Summer is here, and so is this year’s crop of summer  Malibu Beach rentals. If you are a vacation-home landlord or thinking of becoming one, it is time to review the tax rules on rental income from second homes.

One of the tax code’s best freebies allows homeowners who rent out their property for 14 or fewer days a year to pocket the rental income, tax-free.

This generous break can be taken only once a year and it can’t be taken at all if the home is rented for longer than 14 days.

Things get much more complicated if a home is “mixed-use”. Details matter.  If the owner uses his Malibu Beach home  more than 10% of the total days rented, then the losses aren’t deductible, except for property taxes and mortgage interest. Ont the other hand if the beach home is rented 81% of the time then: 81% of the expenses can be written off against the rental income on the owner’s Schedule E, according to Abe Schneier, a tax specialist at the American Institute of CPAs. The other 19% of the expenses aren’t deductible, except the mortgage interest and property taxes, which appear on the owner’s Schedule A.

Other caveats: The IRS may try to count days used by immediate family members as “personal days,” even if relatives pay a market rent. Remember also that Depreciation doesn’t apply to land, only to structures, but it does extend to furniture and appliances. Whatever you do, don’t exchange checks of the same amount with friends or relatives to create fictitious rental income.

The bottom line: Read the Rules and check with a CPA. If you want to be a summer-rental landlord, either keep it simple or keep good records.

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