Category: Rental Property

QUESTION:

We plan to rent out our primary residence for the summer while we are on vacation. Will we have to pay tax on that rental income?

ANSWER:

The general rule is that if you rent your residence for more than 14 days during the year, you’ll have to report and pay tax on that income. You can deduct any related rental expenses on Schedule E. Be sure to allocate the costs between rental and personal use. However, there is an exception, commonly called the Augusta Rule, that applies when you rent your residence for less than 15 days. Then you’ll generally not need to report this rental income. Consult your tax advisor.

QUESTION:

A friend asked if he could rent our lake house for a couple of weeks in August. Are there any tax consequences if we do?

ANSWER:

Not if you observe the IRS’s short-term rental rules. You can rent out your personal residence (including a vacation home), and any money earned from the short-term rental isn’t subject to income tax if the rental doesn’t exceed 14 days in the tax year.

There’s a caveat, though. The rental income becomes taxable if you rent your personal residence for more than 14 days total during any tax year. So, take care to keep accurate records of your rental.