John Bullis: Turn your home into a tax deductible rental
July 17, 2012
One of the tax laws gives a special tax-free benefit for folks who rent out their personal home for 14 or fewer days.
It’s sometimes called the “Masters exemption,” because the first main use was by homeowners in Augusta, Ga. The homeowners there rented out their home for less than 15 days for the Masters Golf Tournament each year.
Because that tournament is popular, the rent can be as much as $20,000.
That will not be taxable income to the homeowner. The owner cannot claim any expenses of the rental (like depreciation), but still can claim the itemized deductions for property taxes and mortgage interest paid in the year.
This special benefit can only be claimed once a year.
Naturally, you would not rent your home to anyone you haven’t checked out, verified references, etc. You should put your valuable jewelry, etc., somewhere else while it is rented. Maybe you should plan a vacation while it is rented.
Documentation is always important. Separate tax files for this “tax-free rental of your personal home for 14 days or less” can be helpful.
With the video cameras available these days, why not take a good video of the home before and again after the rental, just for your files.
If you find the right renter who likes the Reno Air Races or some other special event, maybe it can be an annual thing for you and them.
If you rent out your home for more than 14 days, a completely different set of tax rules apply. In that case, you need to document which days you used it personally, which days you rented it out and which days you did maintenance, repairs, cleaning, etc. Then the expenses get allocated, some to the rental activity and some to non-deductible personal use.
Any rental loss of more than 14 days a year may not be entirely deductible now due to the rules on limitations of Passive Activity Losses. That’s just Congress’s way of not allowing high-income taxpayers to claim rental losses.
However, if the rental loss is not currently deductible, it carries over and will be deductible in future years when you sell the rental, have net rental income or your total income is reduced to less than the phase-out amounts. You may want to do some projections to see what your result might be.
Did you hear? “Age is not important unless you are a cheese.”
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.