March is here and for me that always means the pressure is on to begin preparing for that dreaded time of year—income taxes!
Last week an article came out in BankRate.com which outlined tax deductions for mortgage interest.
But, when I read this line, “Be careful. If you don't vacation at least 14 days at your second property or more than 10 percent of the number of days that you do rent it out (whichever is longer), the IRS could consider the place a residential rental property and ax your interest deduction,” it caused me to stop and think. Is this correct?
I had always interpreted whether or not mortgage interest was deductible based on personal use. According to IRS pub 527, “If you use the dwelling unit as a home and you rent it fewer than 15 days during the year, that period is not treated as rental activity. Do not deduct any of the rental expenses.”
Now, BankRate.com is a very credible source—they have a stringent journalistic process for gathering information and fact-checking articles. So, because I have personal contacts at BankRate.com, I called them.
What I found out was this article was written strictly from the mortgage-interest side of things, based off of IRS pub 936, which is significantly different from the income aspect of rental properties. So in the end, their article was correct (further proving their credibility to me). And, I was correct, too: we were just talking apples and oranges.
So bottom line, income taxes for vacation rental owners are very complex. If you own a vacation home, you may very well want to seek the help of a tax professional when preparing your income tax returns.