1. How will you use the property?
When you have a lovely vacation home, chances are you’ll want to enjoy it with your friends and family, but there may be plenty of time when you won’t be occupying it. That opens up a great opportunity to generate rental income.
In the U.S., the IRS counts your unit as a rental property if your personal occupancy is less than two weeks a year or 10% of the time it’s rented, whichever is greater. If you rent it for less than two weeks per year, you don’t have to pay tax on that short-term rental income.
2. What’s your plan for tracking deductions?
If you’re renting out a vacation property, congratulations! You’ve opened a host of deduction opportunities.
Some possibilities include:
Mortgage interest
Utilities
Maintenance
Insurance
Depreciation
Marketing
It’s critical that you use a solid system for tracking all of the income and expenses related to the property. If you’re also using the property for your own enjoyment, you also need to carefully track which expenses are personal and which are related to the rental. That’s the only way to make sure you don’t miss deductions to which you are entitled and the best way to protect yourself if the IRS comes calling with questions.
3. Who is on your tax team?
Do you do your own car repairs? Your own dental work? Your own legal work? Then it’s time to stop DIYing your tax strategy.
Finding and working with an experienced tax advisor with a proven strategy for permanent tax reduction is the best way to ensure you maximize your results.
Looking for more wealth-building and tax-saving strategies? Schedule a call with the team at TFW Advisors® today!