Tax Deductions for Vacation Homes

Even if you’re a total homebody, there is nothing like packing your bags and taking a break from your everyday life. A vacation home is the best way to enjoy the coziness of an owned property while capturing the carefree, relaxing aesthetic of a luxury hotel or Airbnb.

Massachusetts is the perfect location year-round for a soothing getaway, whether you’re staying with friends and family or sharing the space with someone special. Stunning hiking trails, immaculate restaurants, and salty beach air create the most dreamy location for your secondary home. As a vacation homeowner, not only are you able to enjoy the house for long weekends and summer breaks, but you can also qualify for tax deductions based on how and when you use your house.

Vacation homes are secondary properties, which means you only use the home for a portion of the year. Mortgage requirements are a little stricter for secondary homes in comparison to primary residences, and credit scores and interests tend to be a bit higher.

A vacation home is typically for personal use and is not rented out to others for more than two weeks out of the year. Homes that exceed this limit may be recognized as a rental property, which will require certain tax payments and offer a handful of different deductions. So, if you own a home that you stay in once a week every few years but rent it out for the majority of the time, the house will be recognized as a rental home.

Personal vacation homes qualify for the same tax deductions as your primary residence. However, there is a mortgage limit to benefit from these interest and tax deductions. Interest payments are deductible for up to $750,000 worth of debt (one million for debt accrued before December 15, 2017) and are capped at $10,000. Homes that are solely used as rental opportunities can benefit from a different set of deductions.

Whether you’re renting out your vacation home for a week or using the property as a chance to make some passive income, your expenses may qualify for valuable tax deductions. Those who decide to maintain a full-time rental property will be subject to a 3.8% Net Investment Income Tax (NIIT) which applies to passive income. Full-time rental owners should also fill out a Schedule C form to properly file for deductions if the rental property is a primary income source or a Schedule E if the property is more of a side gig.

As mentioned, income made from rentals of 14 days or less per year is tax-free. This 14-day limit also applies to your personal occupancy when renting out your vacation home full-time. In order to gain rental property status, you must personally use the space for less than two weeks out of the year. Here are some common expenses that can be deducted from your taxes for managing a rental property:

Other routine costs for maintaining a rental property besides taxes include utilities and the occasional repair. Gas, electric, internet, water, and trash removal are just a few essential and recurring bills that qualify for a deduction. Any upgrades that aren’t superfluous and will encourage rental can also be labeled as a business expense.

The decor for your rental — the furniture, cleaning items, and toiletries — are all deductible business expenditures. Even credit card interest for business-related purchases can be deducted, so keep a thorough account of all the expenses for your vacation home to take advantage of every applicable tax break. Consider using a credit card so you have a record of all business-related spending in one place.

This is a necessary aspect of homeownership regardless of whether you use your secondary property as an investment opportunity. It keeps you and everyone that visits your home feeling secure and saves you a ton should you come across any damage or injury in the home.

Listing your home for rent on multiple platforms can be a costly endeavor depending on which websites you use. Besides any possible site fees, you will also have to hire a professional photographer to take good pictures of your home. These costs can be deducted, as they are a key aspect of running your rental home as a business.

Deducting vacation home expenses requires some organization. Keep track of all the days that friends and family use your vacation home, as this can affect your property’s status if they are not paying you to rent out the space. You can absolutely rent out your vacation home full-time and use it personally for more than 14 days (or 10% of the rental days), but you won’t have access to the same deductions. You can only claim expenses corresponding to the days the property was used solely as a rental home.

One of the best things you can do to maximize your enjoyment of your vacation home is to rent out the space when special events or attractions create a need for hoards of eager renters. Summertime invites a flurry of Massachusetts visitors looking for a place to stay during festivals and long weekends. The demand allows you to charge a premium, and as long as you keep the rentals under 14 days annually, you can pocket the profit tax-free.

Beach weather and fresh seafood beckons locals and visitors alike to the shores of Massachusetts, but the allure of New England transcends the seasons. Choosing a vacation home in Massachusetts is a chance to experience bliss at your leisure. Kim Covino is your guide to finding a property fit for the infinite summer or the annual winter rendezvous. Secure the perfect home for sale in Winchester by contacting Kim today!