Tax Advantages of Vacation Home Ownership
According to the IRS Tax Code, a Vacation Home may be considered as either Rental Property or as a Vacation Home depending on the usage.
As Rental Property
If the primary purpose of ownership is to generate rental income, then the following conditions may apply:
a) The owner can use the property for 14 days or less or no more than 10% of the number of days rented for personal use. Additional usage days can be for repair, maintenance, marketing, etc. Personal use is defined to occur if a relative uses the property. The owner is actually involved in the rental of the property.
b) All expenses including depreciation are an allowable deduction offset by the rental income on Schedule E.
As a Vacation Home
a) If the Owner uses the Vacation Home with no restrictions.
b) Owner may take as deductions the property tax. Owner may take as a deduction any interest on loans on Schedule A provided the Vacation Home is considered a second home.
c) Owner can take up to two weeks of rental income without reporting it as taxable income.
d) Owner can take more than two weeks of rental income as taxable income. Expenses as deductions can be taken prorated between personal and rental use. Rental income can be offset by the following prorated deductions: interest, property tax, maintenance expenses and depreciation. No net losses are allowed on Schedule E but any interest or property tax may be taken as a deduction on Schedule A. Excess rental losses can be considered as excess carry forward losses for future years.
Please consult your tax advisor for further details regarding your tax situation.
Vacation Home Ownership Questions and Answers
Q: How do I know what the annual Crow's Nest Resort (CNR) fees will be in the future?
A: The annual CNR fees cover the cost of maintaining the common area's and utilities, security, common area, insurance, water, oil, propane, electric, trash removal, onsite maintenance. Annual dues increases (if any) will be kept to a minimum. An annual owners meeting is held and all expenses are discussed and voted on.
Q: Will I be responsible for property taxes on my Vacation Home?
A: Yes, Vacation Homeowners will be responsible for property taxes on their Vacation Home.
Q: If I rent out my unit, is there a maximum amount of occupants I can rent to?
A: Yes, studio, one, two and three bedroom homes can have up to 2, 4, 6, and 8 people respectively. These are the same numbers management allows when they rent your vacation home.
Q: Can I have a pet?
A: Yes. Only owners (not renters) may have up to two pet animals with the approval of the trustees of the Association. All pets must be leashed at all time when outside the vacation home.
Q: Who is responsible for enforcing the resort's policies?
A: The Trustees of CNR, will be responsible.
Q: How many trustees are there and how are they chosen?
A: There are 5 trustees and they are elected by the owners of the Resort.
Q: How do the owners communicate with each other?
A: Owners are free to communicate with each other in open email forums or privately. The owners also meet once a year in November to vote on a variety of issues based on a formulated agenda. The budget for the following year is reviewed and discussed.
Q: What if I need service for my Vacation Home?
A: Coastal Cape Development, Inc. (CCD) is the managing entity for the property. Your dues cover all common expenses as well as repair and maintenance to those common areas. If you enter into our rental program we will facilitate all necessary repairs and maintenance to the inside of your home as well as provide daily housekeeping and turn-over service for the guest we rent your property to. If you chose to rent your home on your own CCD and its employees can not provide any service to the inside of your unit.
Q: What are the tax rules surrounding Vacation Homes?
A: The following guidelines have been prepared by Medaglia & Co., Inc., CPA firm in Nashua NH.
Use of a Vacation Home as Rental Property.
A vacation home is considered rental property if personal use does not exceed 14 days. Income and deductions from rental use are considered passive. Thus if deductions exceed income, then net loss may not be deductible except against other passive income. If the owner's adjusted gross income does not exceed $100,000, then up to $25,000 of the rental loss may offset other non-passive income assuming that the owner actively participates in the vacation home rental. The $25,000 loss allowance phases out for owners with adjusted gross income levels between $100,000 and $150,000. Active participation typically is present when the owner approves new tenants, negotiates rental terms, and oversees capital and rental expenditure decisions.
Use of a Vacation Home as a Residence.
If personal use of the vacation home exceeds 14 days, then it is considered to be a residence. Although a residence, expenses may be allocated between rental and personal use. The owner may claim expenses attributable to the rental use equal to the rental income received. An allocated portion of real estate taxes and mortgage interest are deductible in excess of rental income as itemized deductions on Schedule A. Other excess expense will be carried forward as an offset to future rental income.
Vacation Home Income excluded from Taxable Income.
If a vacation home is rented for less than 15 days during the year, then the rental income will not be included in the owners taxable income. Of course, no allocable rental deductions are available either. Real Estate taxes and mortgage interest are deductible as itemized deductions on Schedule A.
Please check with your tax advisor for details on your specific tax situation.
Q: As an owner, do I have to have the use the management already in place to rent my unit or can I do it myself?
A: You can either rent on your own or we will handle everything for you. Remember all rental programs are not alike. Our program yields fantastic results - so good that no owner rents on his/her own.
Q: When do my maintenance fees start and when are the payments due?
A: Annual dues are due quarterly in advance January 1st, April 1st, July 1st and October 1st. Dues are pro-rated based on the number of days remaining in the association's fiscal year, January 1st to December 31st.
Q: Can I use my Vacation Home in the winter?
All rates and policies in this document are subject to change without notice.
A: No, the Town of Truro will not allow our property type to be open for the months of December through March. You are permitted to go to your home for cleaning, painting, etc. The planning board and selectman have discussed ways to overturn this ruling enacted some 20 years ago. Many feel it may be overturned in the future.