Tax Deductions for Vacation Homes

The Argelia Vidal Team July 25, 2023

The area around Tampa Bay is home to some of the most highly sought-after real estate in the United States. From the bustling metropolitan cities of Tampa and St. Petersburg to the quiet, luxurious suburb of Lakewood Ranch and everything in between, this area is a premier vacation destination. With miles of shimmering shoreline on some of the best beaches in the world, visitors of these Tampa Bay communities enjoy unmatched access to the turquoise waters of the Gulf of Mexico. The vibrant cities of Sarasota, Tampa, St. Petersburg, and Bradenton boast some of the best amenities in all of Florida. Luxury shopping, fine dining, museums, annual events, and art galleries put Tampa Bay at the center of a hub teeming with life and activity for all to enjoy.

Because of the unmatched opportunities for relaxation and recreation, many homebuyers choose to own a luxury vacation home and turn one of Tampa Bay’s most sought-after communities into their permanent vacation spot. For many others, a vacation home in the Tampa Bay area is a sound investment opportunity. With vacationers flocking to the area by the millions each year, buying and renting out a vacation home has become a lucrative venture. If you are interested in purchasing a vacation home in Tampa Bay, learn more about the tax deductions you can leverage to get the best return on your investment.

Is your vacation home actually a vacation home?

Just because you buy a piece of real estate to use as a vacation home, the IRS may not see the property as one. To be able to take vacation home tax deductions, your property will need to meet specific criteria.

First, your vacation home must have been purchased primarily for personal use. By IRS standards, personal use constitutes any use of the property by the owner, the owner’s family, or by anyone who pays less than the market rent to occupy the home. Vacation homes used strictly for personal use can have real estate taxes and mortgage interest deducted.

A vacation home cannot be used as a permanent residence by anyone, including the owners, and still qualify for vacation home tax deductions. Vacation homes can be rented out, but the number of days rented and the amount of personal use of the home will affect the owner’s tax burden. A home that is never used by the owner or their family or rented for less than market rent is classified as an investment or rental property and will not qualify for vacation home tax deductions.

Odds are, owners of vacation homes will want to rent out their property for at least some of the time. This is a great way to generate extra income and allow more people to reap enjoyment from the home. However, if you plan on renting out your property, you need to be aware of the IRS’s distinction regarding rental houses before deducting vacation home expenses on your taxes, as they will not always qualify.

Tax laws on vacation homes can be extremely complicated and complex, so always consult a tax professional before filing.

Tax deductions for rental owners

Some vacation homeowners choose to use the property only for rental purposes. This is a great way to make passive income throughout the year, especially in a highly desirable vacation destination like the Tampa Bay area.

However, homes that are not used for personal use are not considered vacation homes by the IRS and will not qualify for tax deductions associated with a vacation home. That being said, rental owners can often deduct numerous expenses related to running the business. In most cases, everything from property taxes, insurance, and interest on the mortgage to housekeeping, utilities, and repairs can be deducted.

Homeowners who are actively involved in the running of the property can maximize their deductions. Owners should own at least 10 percent of the property and perform some of the essential tasks, like vetting new tenants, to reap the highest deductions. Additionally, homeowners who made less than $100,000 for the year can deduct $25,000 in rental losses, lowering their tax burden further. Homeowners can often also write off the depreciation of the property, guest service fees, and advertising expenses.

Mixed use of a vacation home

The majority of buyers looking to purchase a vacation home will want to enjoy the property themselves at least some of the time and rent it out the rest. This way, they can make up some of the home’s expenses by renting the house out for part of the year and still have a luxurious vacation getaway at their disposal. However, even using the home for a few extra days a year can change your tax status with the IRS on a mixed-use vacation home.

Vacation homes that are rented out less than 14 days a year are not considered rentals by the IRS. Homeowners do not need to pay taxes on their income generated from renting the property.

However, the rules get more complicated when homeowners want to rent their homes for more than 14 days in a year and continue using the property themselves. When personal use exceeds 14 days per year or 10 percent of the days rented, homeowners can only take deductions for rental properties on the percentage of time the home was rented out. For instance, if the house was rented out 75 percent of the time and used by the family the rest, homeowners can only write off 75 percent of expenses as rental property deductions. Therefore, homeowners that hope to reap the tax deductions on their vacation home should try to limit their personal use of the home to one day for every 10 days rented to keep their use under limits set by the IRS.

No matter your goals, consult with a trusted tax professional and real estate agent to ensure you understand the limitations and regulations before committing to a purchase.

Make your vacation home-owning dreams come true

If you are ready to buy a vacation home in the highly-desirable Tampa Bay area, find the right local agent to help your aspirations become a reality. Argelia Vidal specializes in vacation homes in some of Tampa Bay’s best communities, from Lakewood Ranch real estate to St. Pete and more. If you are ready to start looking at properties in this incredible area, reach out to The Argelia Vidal Team to get the best local agent on your side.

*Header photo courtesy of The Argelia Vidal Team

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