NATP Explains Expensing For Second Home Owners

by Leroy Baker, Tax-News.com, New York

21 June 2007

The National Association of Tax Professionals (NATP) has reminded US taxpayers that if they receive income from renting a vacation home to others, which will be taxable, certain expenses may be deducted. These expenses, which may include interest, taxes, casualty losses, maintenance, utilities, insurance, and depreciation, will reduce the amount of rental income that is taxed.

“The major message to taxpayers is - keep all records - we’ll handle the computations,” said tax professional Marilyn Meredith, EA, NATP member. “All records mean every expense for the property for the year. Additionally, records should show the days of use by the owner or family members, and the days the property was rented for profit.”

The Internal Revenue Service (IRS) Tax Topic 415 explains that the amount of deductible expenses depends on how many days the owner personally uses the vacation home. If the owner is renting to make a profit and does not use the dwelling as a home, deductible rental expenses can be more than your gross rental income, subject to certain limits. However, if someone rents a dwelling that is also used as a home, deductible rental expenses will be limited. If a taxpayer itemizes deductions, mortgage interest, and real estate taxes are deductible regardless of the rental use.

“If a residence is rented out for 14 days or less during the year, rental income is not reported and related rental expenses are not allowed,” explains Susan Spaur, CPA, NATP member. “This works well if your primary or secondary residence is near a short-term event like a Superbowl, NASCAR race or NBA final.”

If a dwelling is used for both rental and personal purposes, the owner generally must divide total expenses between the rental use and the personal use based on the number of days used for each purpose. However rental expenses cannot exceed gross rental income.

Members of the National Association of Tax Professionals (NATP) work at offices that assist over 11 million taxpayers with tax preparation and planning. The average NATP member has been in the tax business for over 20 years and holds a tax/financial designation and/or a college degree. NATP has more than 18,000 members nationwide. Members include individual tax preparers, enrolled agents, certified public accountants, accountants, attorneys, and financial planners. Learn more at www.natptax.com.

NATP is a nonprofit professional association founded in 1979 to serve professionals working in all areas of tax practice through professional education, tax research, and products. The national headquarters, located in Appleton, WI, employs over 40 staff members.

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