One common tax myth is the belief that you don’t need to report rental income from vacation homes. This misconception can lead to underreporting of income and potential issues with the IRS. Here's what you need to know to stay compliant and avoid these pitfalls.

Origin of the Myth

• Short-Term Rental Confusion: Many people mistakenly believe that short-term rental income is not subject to tax.

• Lack of Awareness: There is often a lack of understanding about the specific tax rules for vacation home rentals.

Reality of Reporting Vacation Home Rental Income

• Taxable Income: The IRS considers rental income from vacation homes to be taxable income that must be reported on your tax return.

• 14-Day Rule: An exception exists if you rent out your vacation home for 14 days or fewer per year. In this case, the rental income is not taxable, and you do not need to report it.

IRS Guidelines on Vacation Home Rentals

• Reporting Requirements: If you rent your vacation home for more than 14 days per year, you must report the rental income on Schedule E (Supplemental Income and Loss) of your tax return.

• Expenses and Deductions: You can deduct rental-related expenses, such as mortgage interest, property taxes, maintenance, and repairs. These deductions are proportionate to the amount of time the home is rented out versus personal use.

Why the Myth Persists

• General Misconceptions: Many taxpayers believe that short-term rental income is not significant enough to report.

• Anecdotal Advice: Misleading information and anecdotal advice from non-professional sources perpetuate the myth.

Avoiding the Pitfall

• Understand the Rules: Clearly understand the IRS rules for vacation home rental income.

• 14-Day Rule: If you rent out your vacation home for 14 days or fewer per year, the income is not taxable.

• Report Income: If you exceed 14 rental days, report all rental income on Schedule E.

What You Need to Do

• Keep Detailed Records: Maintain accurate records of rental income and expenses, including the number of days the property is rented and the number of days it is used for personal purposes.

• File Schedule E: Report rental income and expenses on Schedule E if you rent out your vacation home for more than 14 days per year.

Consulting a Tax Professional

• Seek Professional Advice: Consulting a tax professional can ensure you correctly report rental income and maximize your allowable deductions.

• Accurate Records: A professional can help you maintain proper documentation and navigate the complexities of vacation home rental income reporting.