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Rental of Residence: How to rent your house tax-free?

Do you own a home or vacation home in a desirable location? Is the location of your home(s) near a large event or significant tourist attraction? If so, you can make some extra income by renting out your home. Because of services like Airbnb and Vrbo, it is easier than ever to make extra income via short-term rentals.

Ordinarily, rental income is fully taxable. However, an advantageous exception to this rule exists for taxpayers participating in short-term rentals. If you take advantage of this exception, you can benefit from a large amount of tax-free income. I will discuss the rules and requirements below. Learn how to rent your home tax-free!

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How to rent your home tax-free?

The general rule: Rental income earned from a personal residence rented for fewer than 15 days per year is tax-free.

So, you can rent your home for up to 14 days per year to take advantage of the short-term rental tax-break. All the rental income earned is tax-free, meaning there is no income limit for this exception. In fact, you do not need to report the rental income earned from short-term rentals during the 14-day period. Lets take a closer look at the tax rules surrounding the tax-free residence rental exception.

Rent your home tax-free - Rules to know

Rule # 1: You rent the home fewer than 15 days

As stated, you qualify for the exception if you rent your home fewer than 15 days per year. Therefore, if you rent your home for 15 or more days, you will no longer qualify for the exception, meaning that all the rental income becomes taxable.

Rule # 2: You personally live in the home for more than 14 days

If you live and use personally the home for 15 days or more, it is treated as a personal residence. This is important if you plan to rent out a vacation home under this tax rule. Make sure to spend time in the vacation home to meet Rule # 2.

For example, I rent out my mountain cabin for 14 days during the winter. During the year, I live in the cabin for a month. The vacation home qualifies as a personal residence and tax-free rental home.

Special rules apply when calculating personal use. Please research personal use rules when used by family or anyone at less than fair rental price.

Rule # 3: Tax deductions for your home

Because your home(s) qualifies as a personal residence, you are still entitled to the related itemized deductions. You may report mortgage interest on your first or second home as an itemized deduction. Additionally, you may itemize the property taxes on your personal residence(s).

However, you may not deduct depreciation expenses, utility expenses, and repair expenses related to your personal residence(s).

In conclusion

You can make tax-free income from renting your home short-term. Strategically rent out your home or vacation home during peak tourist times. By doing so, you can earn large amounts of tax-free income during the 14-day period. Remember to follow the three rules above when renting your home tax-free!

Please share with others to teach them how to rent their home tax-free. As always, please comment below if you have any questions relating to the short-term home rental tax-break.


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