Vacation Rental Taxes: Getting The Most From Your Return With IRS Publication 527

Tax season, no doubt, can be stressful. But, as a vacation rental homeowner, you’re tasked with an extra IRS reporting step when you file your vacation rental taxes: claiming all of the rental income you earned on your property and reporting any related expenses. 

To help provide tax-filing guidance to residential rental property owners—which includes those who own vacation rentals—the Internal Revenue Service publishes a comprehensive tax document that’s known as IRS Publication 527. This document covers information for income-generating rental activities, including renting out a second home full-time as well as renting out a vacation home when it’s not in use, either by the homeowner or family members.

Here’s what every vacation rental owner should know about this year’s version of the IRS Publication 527, the 26-page document that addresses important questions like how many days your vacation home needs to be rented for in order for you to claim rental income and whether advertising your rental property counts as an expense.

How To Report Vacation Home Rental Income

First things first, you’ll want to determine whether you actually need to report rental income you’ve generated from the year 2019 on this year’s returns. The IRS explains that, in most cases, yes, you’ll need to report in your gross income, the income you’ve received from renting the home.

But, there are some exceptions: For instance, if you used the property as a home, and you rent it less than 15 days during the tax year, you don’t include the rent you received in your income and you don’t deduct rental expenses, according to the IRS.

Taxpayers reporting rental income on their tax returns will use Schedule E (Form 1040) to report the income and expenses from rental real estate.

How To Use IRS Publication 527 To Report Rental Income

The IRS Publication 527 will give you the framework you need to report rental income, and deduct expenses. Consider it the resource to answer any questions you might have related to filing taxes for your secondary residential rental property on your federal income tax return.

As far as income, the IRS Publication 527 outlines what should be reported. The common income that vacation rental owners would need to report would be any rental payments, including those paid in advance, any cancelation payments, and any security deposits that were retained.

The form also outlines common expenses that tax filers can deduct when they file their federal taxes. Some of the common expenses that apply to vacation rental homeowners include advertising, cleaning and maintenance fees, commissions, insurance, legal fees, management fees, repairs, taxes, and utilities. The IRS, in announcing its updated IRS Publication 527 this year, stated that mortgage interest premiums paid to banks can also be considered an expense.

Filing Taxes In 2020

The deadline to file your 2019 income taxes was April 15, 2020. However, as part of the government’s response to COVID-19, individuals and businesses will have an extra 90 days to pay the IRS, should you owe additional income tax.

Some states are making changes due to COVID-19. In California, individuals will have until June 15 to both file and pay their state taxes.

Working with a tax professional can help make the process smoother, helping navigate the IRS rules and also ensuring that you don’t miss out on any deductions.

Also, working with a property management company can help make tax time seamless. For instance, TurnKey provides homeowners with ready-to-file documents and collects taxes from each stay so you don’t get hit with a big bill come tax time. Also, we create 1099s for vendors who provide services for your vacation rental, like cleaning, repairs or landscaping.

TurnKey Takeaway:

What Every Vacation Rental Owner Needs To Know About Filing Taxes

We’ve gone over what you need to know to successfully file your vacation rental taxes according to IRS Publication 527.

  1. Taxpayers reporting rental income on their tax returns will use Schedule E (Form 1040) to report the income and expenses from rental real estate.
  2. The income that vacation rental owners need to report includes any rental payments, such as; those paid in advance, any cancelation payments, and any security deposits that were retained.
  3. The deadline to file your 2019 income taxes was April 15, 2020. However, individuals and businesses will have an extra 90 days to pay the IRS if they owe additional income tax.

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