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Vacation Homes: Tax Reporting, Rental vs. Personal Property, Maximizing Expenses, Conversions, Personal Use

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, July 28, 2022

Recorded event now available

This course will give tax advisers a thorough look at the tax implications of buying and renting vacation properties. Understanding how to maximize deductions for vacation homes, selling strategies, and the impact of legislation on these properties can make them worthy investments. Our panel of experts will explain how to optimize the tax benefits of vacation home ownership.

Description

Vacation homes provide a getaway for owners--with rental income or appreciation as a bonus. The tax rules covering these second homes are complicated. Renting the property for less than 14 days can provide tax-free income. Personal use of more than 14 days or 10 percent of the dates rented subjects the vacation home to limitations on expense deductions. Expense deductions are limited to rental income with excess expenses carried forward.

For these homes, tax preparers must consider whether to use the IRS or the court method for allocating expenses and the new SALT limitations. With less than 10 percent personal use, the property may qualify as a rental. A rental property classification could provide a tax deduction for a taxpayer with other passive income or AGI less than $150,000.

Sales of second homes are subject to the rule of "heads you lose, tails the IRS wins." Gains are subject to tax; losses are not deductible. At the same time, gains of $500,000 and $250,000 from the sale of a personal residence are excludable by married and single taxpayers, respectively. Converting a vacation home to a personal residence can generate significant tax savings.

Listen as our panel of experts provides insights into classifying vacation homes, converting these homes to residences, and allocating expenses to maximize tax deductions. The classification of these getaways is critical to deduct current expenses, minimize rental income, exclude gains on sales, and recognize losses.

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Outline

  1. Classifications of vacation property
    1. Rental
    2. Mixed-use
  2. Deducting expenses
    1. Mortgage interest and real estate taxes
    2. Depreciation
      1. Cost segregation
      2. Material participation
      3. Bonus depreciation
    3. Travel
    4. Other operating expenses
  3. Selling a vacation home
  4. Converting a vacation home to a personal residence
  5. Strategies for keeping it in the family

Benefits

The panel will review these and other vital issues:

  • Differences between rental properties and vacation homes
  • Strategies to maximize expense deductions on vacation homes
  • When and how to convert vacation homes to rental property
  • Selling strategies to minimize gains

Faculty

Capdevielle, Cliff
Cliff Capdevielle
Managing Attorney
Moskowitz

Mr. Capdevielle has been developing sophisticated tax planning strategies and resolving tax disputes for clients more...  |  Read More

Lochridge, Kim
Kim Lochridge
Executive Vice President
Engineered Tax Services

Ms. Lochridge is Executive Vice President for Engineered Tax Services, Inc. (ETS), an industry-leading provider of...  |  Read More