|Cathy R. Robinson, CPA|
Owning a vacation property can be a great idea. You get the perks of vacationing somewhere else for as long as you like, while also being able to rent out the property when it’s not in use. It seems like the perfect scenario. However, there are also some drawbacks to owning a vacation property that you may not be aware of.
So what can you do as a vacation property owner to help make sure you’re compliant? Begin with good recordkeeping. Documentation is needed for the rental income and expenses. The amount of rent that is charged should be the fair market value even if renting to relatives. If your rental property has a loss for the year and you did not charge fair market value, the loss will be disallowed. The IRS will need to review all records if you are audited.
Many business owners also make an error when they assume that just because they have simply paid the federal income tax on their revenue they have nothing else to worry about when it comes to the world of taxes. Sadly, they are wrong.
First, you need to determine the license requirements as well as the tax. This can be confusing as these items can be highly localized with different names and requirements. The next step is to register with any state and local tax agencies. Also, remember to renew your business license each year.
As always, it is important to consult your accounting professional. They can help you to navigate the tricky waters of the various taxes involved and assist with developing a plan for your recordkeeping.