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1361 South Winchester Boulevard, Suite 113
San Jose, CA 95128

What You Need to Know About Taxes When Renting a Residence Seasonally

 Posted on September 10, 2018 in Taxation Law

San Jose, CA tax lawyer property rentalWebsites such as Airbnb, VRBO, and HomeAway make it easier than ever to generate income by renting out a private residence, meeting the huge demand for home rentals, especially during the summer months when people go on vacation. However, the income collected from rental of a residence is typically subject to taxation, and there are special tax rules that must be followed. If you are a homeowner who plans to rent your property seasonally, you should be sure to understand whether your situation meets certain IRS requirements for taxation. 

Residential Rental Property Defined

The first step in determining how rental income will be taxed is understanding if the property you are renting is a residential rental property under the definition provided by the IRS. A dwelling will be classified as a residence if it is utilized for personal purposes during the tax year for 14 days, or for 10 percent of the total number of days the residence has been rented to tenants at its fair rental value, whichever is greater. Personal use could include the use of the dwelling by:

  • Anyone who owns a part of the dwelling;
  • Any family members of anyone who owns the property in whole or in part (unless the family member uses the dwelling as his or her primary residence and pays fair rental value to the owner);
  • Anyone who uses the property as part of an arrangement that allows the owner to use a different dwelling; or
  • Anyone who uses the property after receiving a discount that results in that person paying less than the property’s fair rental value.

Income, Deductions, and Other Considerations

According to the IRS, rental income includes regular and advance rent payments, penalties for lease cancellation, and expenses paid to the property owner by the renter. This income generally must be reported each year. 

If a property owner uses a dwelling for personal purposes while also renting the property during the tax year, the property owner must determine separate expenses related to their personal use of the property and their tenants’ rental use of the property. The amount of deductible rental expenses could be limited if the rental property is considered a residence.

Contact a San Jose, CA Tax Law Attorney Today

Due to the popularity of sites like Airbnb, you may have questions regarding how your tax obligation will be calculated. For many people, taxes are an afterthought when deciding to embark on this type of endeavor.

Our skilled San Jose tax lawyer can review your circumstances and give advice on how to bring you into compliance with IRS rules. This type of rental income is new for many people, so it is understandable that there will be unresolved issues and questions. Call 408-866-1810 today to have these issues reviewed by our taxation attorney.


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