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Buyers Guide >   Tax Benefits

Tax Deductions for a Mountain Home

If you own or are thinking of owning a second home in Summit County, you might be wondering about offering it as a vacation rental, or short-term rental. Depending on the location and configuration, short-term rentals can bring in significant money to defray the cost of your vacation home. Furthermore, you may be eligible for tax deductions on your property if it is used as a rental property when you are not occupying the home. Varying deductions can apply depending on how much you use the property versus how much you rent it out. Your Breckenridge Associates Real Estate professional can answer many questions you might have or direct you to a tax professional. 

Tax Deductions for Rental Property

If your mountain home is used exclusively as a rental property, other tax rules apply. Please consult a tax professional to discuss what expenses you can deduct including taxes, insurance, mortgage interest, utilities, housekeeping and repairs. Even towels and sheets might be deductible. Ask if you can write off depreciation - the value lost due to the wear-and-tear over time.  

Time spent checking in on a house or making repairs doesn't count as personal use.  So, technically, you will be able to make use of your vacation property.

The tax benefits are a little more complex if you rent property more than 14 days (10 percent of the year), so you might want to plan before you rent, or even before you buy.  For different circumstances, different plans may be more profitable.

Mixed Use of a Vacation Home

If you want to deduct all of the expenses, then you can use the home for pleasure no more than 14 days, or 10 percent of the number of days it is rented -- whichever is more. If you exceed this, then the home is considered a personal home, and you can't use the loss, but you can deduct the interest.  

Your use might fall somewhere in between and you have to proportion the expenses. Say, for example, it's rented 60 days and your family uses it 30 days (90 days used, means 60 of 90 day or 2/3 of the time it was used it was a rental), then 2/3 of your qualifying deductions can be considered rental expenses. The entire amount you pay a property manager would be deductible as well. If you can claim depreciation as a deduction (based on 2/3 of the value of the house), the amount could be in the thousands.  You can see how rental income can easily offset cost so that you don't incur a higher tax liability, and you've brought in money to help pay the mortgage.

Rental property losses are not always deductible from regular income, but they can be accumulated to offset capital gains when the property is sold.