How to Decide if Renting out Your Vacation Home Is Right for You
There are a few things to consider when buying a vacation home. Many people who have a vacation home do not have time to stay at the vacation home year-round. They may also want the extra income from renting a vacation home to pay for the expenses of the home. The first thing to consider is whether or not it is an asset. You also have to know how a vacation home can fit into your retirement plans for the future. Also you need to know what tax requirements need to be fulfilled when buying a vacation home.
Are You Taking on An Asset or Liability?
The idea of taking on a vacation home sounds amazing. However, it may not be as simple as it looks. Buying a vacation home with cash is the best way to go. However, if you are taking on another mortgage to pay for the vacation home, it can mean more debt, more property taxes, and more insurance. With all the risks that come with buying a vacation home, it may be best to rent one.
However, if you have a diversified portfolio and can cover all the expenses, it may be possible. In order to have positive cash flow, it is important to research the return on investment in the area that you want to buy your vacation home. A larger home may mean more money because you can host larger family groups. A property management company may also increase your profits on the property. However, you have to make sure you can cover the cost of a property manager before taking one on.
Preparing for Retirement
Some people plan to retire in their vacation home. Getting your retirement home in your working years is a great idea because it is easier to qualify for a mortgage. You can also make the renovations needed to feel comfortable in your older years. Not to mention, you can have the mortgage paid off before retiring. Buying the home you will retire in is also a great way to test your vacation home. Do you have access to good medical care at your vacation home? Is there good transportation? What about access to culture and entertainment? The size of the home is also important to consider as it may be difficult to clean or move around as much as you get older.
Knowing Your Rights
If you choose to rent out your home for less than 15 days out of the calendar year, you do not have to pay taxes. However, any expenses you incur during that short time cannot be deducted. If you choose to rent out your vacation home for more than 15 days, you will have to report and pay taxes on the rental income. You can deduct expenses such as cleaning, advertising, depreciation, utilities, and maintenance.
There are also certain requirements when dealing with loss. If you want to use your vacation home for more than 14 days or 10% of the time that it is rented, it is a personal use property and you cannot deduct the loss of rent. This does not include time spent at the home for repairs and maintenance. It is important to maintain any lease documents in regards to the rental income received. It is also important to maintain records of time spent at the vacation home. This is for your own protection. If the IRS wants to audit your taxes, you will have records for them to review.
The Wrap Up
When buying a vacation home, there are a few things to think about. You first have to decide if the vacation is an asset or a liability. You then also have to figure out how a vacation home can fit into your retirement plans. Last but not least, you need to know what are the tax laws when it comes to taking on a vacation property. Focusing on these things can help you decide whether or not a vacation home is for you and your family.
