Vacation Homes: Tax Reporting, Rental vs. Personal Property, Maximizing Expenses, Conversions, Personal Use

Vacation homes provide a getaway for owners--with rental income or appreciation as a bonus. The tax rules covering these second homes are complicated. Renting the property for less than 14 days can provide tax-free income. Personal use of more than 14 days or 10 percent of the dates rented subjects the vacation home to limitations on expense deductions. Expense deductions are limited to rental income with excess expenses carried forward.

For these homes, tax preparers must consider whether to use the IRS or the court method for allocating expenses and the new SALT limitations. With less than 10 percent personal use, the property may qualify as a rental. A rental property classification could provide a tax deduction for a taxpayer with other passive income or AGI less than $150,000.

Sales of second homes are subject to the rule of "heads you lose, tails the IRS wins." Gains are subject to tax; losses are not deductible. At the same time, gains of $500,000 and $250,000 from the sale of a personal residence are excludable by married and single taxpayers, respectively. Converting a vacation home to a personal residence can generate significant tax savings.

Listen as our panel of experts provides insights into classifying vacation homes, converting these homes to residences, and allocating expenses to maximize tax deductions. The classification of these getaways is critical to deduct current expenses, minimize rental income, exclude gains on sales, and recognize losses.

1. Classifications of vacation property
   • Rental
   • Mixed-use
2. Deducting expenses
   • Mortgage interest and real estate taxes
   • Depreciation
     • Cost segregation
     • Material participation
     • Bonus depreciation
   • Travel
   • Other operating expenses
3. Selling a vacation home
4. Converting a vacation home to a personal residence
5. Strategies for keeping it in the family

The panel will review these and other vital issues:

• Differences between rental properties and vacation homes
• Strategies to maximize expense deductions on vacation homes
• When and how to convert vacation homes to rental property
• Selling strategies to minimize gains

Learning Objectives

After completing this course, you will be able to:

• Ascertain the differences between vacation and rental property
• Determine properties that are considered vacation homes
• Recognize situations when converting to a rental may be beneficial
• Identify ways to maximize expense deductions for vacation homes
• Distinguish between the IRS and court method of deducting expenses

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).