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2024 Vacation Home & Short-Term Rental Tax Laws 

By Jaclyn Martello

As the summer season commences and the popularity of online vacation rental platforms continues to grow, it is important to be aware of tax laws regarding short-term rentals to reduce tax liability on any resulting income.

Possible Deductions for a Short-Term Rental

Rental income, typically reported on a Schedule E, may be minimized through the deduction of expenses related to the property, such as mortgage interest, real estate taxes, repairs, insurance, depreciation, and casualty losses. The portion of other property expenses that are directly related to the rental, such as utilities, upkeeping, etc., may also be included as expenses through Schedule E. 

Limitation of Rental Deductions Due to Personal Use of Property 

Rental expenses are limited if the rental property is also used for personal purposes for more than the greater of 14 days or 10% of total days rented during the year. In this case, the property is considered a home and personal/rental expenses are divided based on days of personal use and days of rental use. They are then split, respectively, between Schedule A and Schedule E.

Dividing Personal and Rental Usage of Expenses 

  • Rental and personal use, but not considered a home: When dividing expenses, any day that is rented is considered a day of rental use (even if used for personal purposes within that day) and any day that the unit is available for rent, but rent is not collected for, is a day of personal use. 
  • For a home: When dividing expenses, any day that is used for personal purposes (even if that day is rented) is considered a day of personal use. 

The personal use of expenses are not deductible as rental expenses. Total property expenses are divided by the days of rental use to determine the portion that should be allocated to the Schedule E – for rental income deductions and likewise for the days of personal use to be reported on the Schedule A – for personal itemized deductions. 

Keep in mind, if the property is used for both rental and personal purposes, the rental expenses cannot exceed rental income, per the gross rental income limitation. However, some of these expenses may be carried forward to the next year per the yearly limitations. If a property is not used for personal purposes and AGI is less than $150,000, losses up to $25,000 may be deducted. 

Minimal Rental Use Special Exemption 

If the property is used as a primary residence and rented for less than 15 days, neither rental income nor expenses should be reported. 

1099-K & Third-Party Transactions 

Online rental marketplaces such as Air BnB, VRBO, and others will typically issue a 1099-K if gross income exceeds $5,000 for the year 2024. This form will report the total payments received and help to determine the total income from such sources.

This information has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for tax, legal, or accounting advice. If you have any questions regarding vacation homes or short-term rentals, please do not hesitate to contact us at Lear & Pannepacker.