How Renting Your Vacation Home Out in New Jersey Can Impact Your Taxes
Warm summer weather is here, and if you’re fortunate to own a vacation home separate from your permanent residence, now is the right time to look into renting it out for the summer.
Renting your vacation home out in New Jersey can provide many benefits, such as supplementing your regular income. But if you do choose to collect income from renting out your vacation home, you mustn’t forget about the tax impact when you file your annual taxes. Being informed and prepared will help you get the most out of your rental property and ensure you don’t accidentally run afoul of your responsibilities.
Understanding Rental Properties & Taxes
These days, the availability of digital platforms like Airbnb, VRBO, and other short-term rental apps makes it easier than ever to rent out your non-primary residence. It may seem like a quick and easy way to earn some extra income, but what you get paid for your rental is not the end of the story. As with all forms of income, there are tax implications.
The most common type of setup is using vacation home rules. A house is officially considered a vacation home if you rent it out for more than 15 days per year. If the house is your primary residence and you rent it out for an aggregate of two weeks or less, then you don’t need to report the income when filing taxes. However, in all other situations, you must report rental income on the Schedule E report.
The income you receive from your vacation home is the main aspect taxed. If you’re using specific apps or services to assist in the renting out process, what ultimately gets taxed is the amount you can cash out from those services.
Potential Tax Deductions
Similar to other types of businesses, your rental property typically has a balance of revenues and expenses. The revenues are from the income you collect from your guests, while the expenses account for the maintenance costs for the property. Aspects like repairs, cleaning services, and general upkeep towards maintaining the rental property for your guests can all be used as tax deductions. However, there are some important distinctions to keep in mind.
Using the Vacation Property for Yourself
If you’re using the vacation home as a residence or a getaway for yourself for a specific portion of the year, then you must pro-rate the expenses associated with keeping up the property. This means you’re only deducting the proportion of time it’s occupied by paying guests. For example, if 5% of the time it’s occupied by you and 95% of the time it’s occupied by paying guests, you can only deduct 95% of those expenses.
Vacation Home is Considered a Residence
There may be a maximum that you can deduct which is equal to the total rental income. For example, if you collected $10,000 during the year in rent, you can’t deduct more than $10,000 in expenses from your taxes. This situation applies if a home is officially considered a residence, meaning it provides basic living accommodations expected for a full-time home and if you use it for more than two weeks or more than 10% of the total occupied days.
Ensuring You Don’t Miss Anything
The rules and the tax implications for renting your vacation home can quickly become complicated. These complications can get trickier as you expand into each state’s and local jurisdiction’s specific rules, which are likely to change on a year-to-year basis. So, while renting out your New Jersey vacation home in Cape May, Point Pleasant, Wildwood, and other fun getaway locations has tremendous financial benefits, it’s vital you receive professional tax guidance and help to ensure you’re accurately and fairly representing the income and expenses.
Tobin and Collins can help you navigate the tax implications of renting out your vacation home. Our tax consultants and financial advisors are ready and able to assist you, so get in touch with us to get started today.