How do you maximize tax breaks for your vacation home?

Hi guys, this is Noel Dalmacio, your ultimate CPA at
How do you maximize tax breaks for your vacation home?
If you own a vacation home, a boat or an RV
that you also rent out to others,
keep track of the rental use during the year to maximize your tax breaks.
Here are some tax strategies you need to consider:
Number 1. Receive tax-free income. Yes! You heard it right!
If you rented it out for 14 days or less during the year, you don’t have to report the income. You get tax-free income!
You can generally deduct mortgage interest and real estate taxes, but you can’t deduct any other rental expenses. Hey, tax-free income is still great stuff!
Number 2 – Limit your personal use so you can deduct all your rental expenses.
If you limit your personal use to NOT more than 14 days or 10% of the time the home is rented, all rental expenses are deductible.
However, conversely, number 3* If you use the property personally for more than 14 days or 10% of the number of days it’s rented, the rules change. Your rental deductions (except for taxes and mortgage interest) are limited to the amount of your rental income.
So here’s an example: You stayed in your vacation home 20 days last year. It was rented at fair market value for 190 days. In this example, your personal use exceeded the 10% limit (19 days). Therefore, your rental deductions are limited to the rental income you received.
Number 4. Convert the property as your primary home, and the gain when you sell may be tax-free. If you use your vacation home as your principal residence for two out of the five years before you sell it, you may exclude up to $250,000 of gain ($500,000 for married couples) from your income. However, you will have to pay tax on gain to the extent of certain depreciation you previously taken after May 6 , 1997 and you might need to allocate the gain on sale between the primary home and the rental.
The rules are a little bit complex, but a basic understanding of the rules and good recordkeeping will help you get the best tax breaks from your vacation home.

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Noel Dalmacio, CPA, CFP, MS TAX
30 Corporate Park, Suite 102.
Irvine, CA 92606

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