Air BnB/VRBO Short Term Rental & vacation home

[TatumForMVP]

We have a primary home w/ a $550K mortgage remaining (bought in 2015 / loan origination date)

We have a vacation home w/ a $430K mortgage remaining (bought in 2021 / loan origination date)

In 2022, we renovated the vacation home and took out a $80K home equity line.

Property taxes on a primary home is $10K

Property taxes on a vacation home is $5K

The plan is to rent out the vacation home for as much as we can in 2023 but realistically, it will probably only be for a few weeks during the spring/fall/summer. 

We plan on being in the home for a cumulative 30-45 days throughout the year for personal use.

As far as rental income received, can I use mortgage interest and property taxes as an offset to to this rental income (even if the interest and tax goes over the $1M / $10K cap for mortgage interest and state taxes respectively)?

How can I account for depreciation if I plan to be there 30-45 days a year and realistically expect the home to be rented about 8-10 weeks a year (and the rest of the time, it will be idle).

I'm planning for 2023 already 🙂

[PatriciaV]

It depends. Mortgage interest and property taxes for a vacation property are prorated based on the relative number of rental and personal use days for the year. Depreciation is calculated in the same way, although you would report depreciation only for the rental use of the property.

You're considered to use a dwelling unit as a residence (second home) if you use it for personal purposes during the tax year for more than the greater of:

1. 14 days, or
2. 10% of the total days you rent it to others at a fair rental price.

However, if you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be a rental and it should not be reported on Schedule E. In this case, you are not required to report rental income on your tax return.

We recommend that you enter this information into TurboTax and allow the program to determine the outcome for you. Remember you can use TurboTax Online for free until you decide to file. Or you can install TurboTax on your desktop and create as many tax return scenarios as you wish.

Additional Information:

• IRS Pub 527:  Personal Use of Dwelling Unit (Including Vacation Home)
• IRS Topic 415: Renting Residential and Vacation Property

[TatumForMVP]

This is great - thank you! I do plan on using Turbo tax (w/ rental features) next year (as I have been using turbo tax Premier on my regular taxes since 2012). 

I just wanted to prepare for 2023 and see what my guardrails are for maximizing tax benefits. This would be my first-year renting after spending just over $300K in renovations last year. 

Are there any books/turbo tax references that I can read up on as I prepare for 2023?

[PatriciaV]

This TurboTax article is a good place to start: Tax Tips for Landlords

Good luck!