Recharge Required Knowledge About Vacation Homes With EA CPE
Choices for enrolled agent continuing education courses include a multitude of federal tax topics. This is an opportunity to reinforce knowledge about the important subject of vacation homes. Almost every taxpayer with a vacation property presents a unique situation to consider.
Not only are vacation homes a complex tax matter but also an individual who owns one generally hires a federally licensed tax practitioner. Therefore, efficiency in enrolled agent employment demands familiarity with the tax impact of vacation homes.
The primary consideration for owners of vacation homes is whether they rent the property to someone else during the year. Receiving rent on a home that is rented for less than 14 days per year has no income tax consequence. The rent collected is not reported as income and of course that means there is no deduction for rental expenses.
However, if the rental days exceed 14 the rent is taxable income. If the owner also occupied the property for at least 14 days, it may constitute a personal residence too. Any taxpayer can have several personal homes during the year. A dwelling is a personal home if the owner occupies it for more than 10 percent of the days it’s rented – with the 14 days as a minimum. Therefore, an enrolled agent test question may identify a property as a personal residence if the owner occupies it for 25 days and rents it for less than 250 days.
The expenses for a dwelling used as both a personal home and rental property are apportioned based upon the percentage of days for each purpose. The instructions in EA CPE teach this process. The personal use days include any days the property is used by family and friends without paying rent. Vacant days are not counted; only the days occupied personally or by rental tenants.
If a dwelling is occupied by its owner for less than 14 days – or even if it is more than that but less than 10 percent of the days it’s rented – then it is an investment property rather than a personal residence. Most genuine vacation homes are therefore occupied for considerable lengths of time by their owners.
Some vacation homes are not ever rented and are therefore entirely considered personal residences. As such, the property taxes paid are an itemized deduction for federal income tax purposes. However, property taxes are a preference item that is not deducted for the Alternative Minimum Tax calculation.
In addition, mortgage interest on a second home is a tax deduction in most cases. This category of itemized deduction is limited to interest on combined mortgages of $1,000,000 for two houses.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.