I’ve always seen the tax code as a series of incentives. Simply put, the IRS will reward or punish you depended upon how you behave. If you want to win big with your taxes, you need to modify your behavior.
While there are a lot of different things you can do to make money. This is one of the simplest strategies I have found to make TAX-FREE income. Before I introduce this topic – you should make sure to run this past your CPA or tax advisor.
IRS topic no. 415 is really quite simple. This topic covers the rules regarding renting residential & vacation property. The tax law provides that if you rent your home or a secondary vacation home for fewer than 15 days a year then the income does not need to be reported to the IRS. Don’t believe me? Here’s the line direct from the IRS:
Minimal Rental Use
There's a special rule if you use a dwelling unit as a residence and rent it for fewer than 15 days. In this case, don't report any of the rental income and don't deduct any expenses as rental expenses.
This means that you can pay for a two-week vacation via rental income from your personal residence & said income is not taxable. How cool is that!!!!
Keep in mind you cannot deduct any
expenses either. Regardless, this is a super simple way to fund an awesome vacation!
So what’s the trick?
Check with your local laws, HOA and local community to make sure you don't break any rules. Do this first.
Remember what I said about behaviors & incentives? Be willing to rent out your house or vacation home. I know that's easier said than done. For me? No problem! For my wife? Well....
Document. Document. Document. Make sure you’ve documented everything. If you don't, you'll have a hard time claiming no income. Groups like like Airbnb will create a 1099-MISC. This reports the income to the IRS. Proper documentation will allow your CPA to record that you stayed under the 15-day limit so that you can declare it non-taxable to the IRS.
"What if I am self-employed? Can I rent out my home or vacation home to my clients?" It gets a little more complicated but the short answer is maybe. 2018 rules for meals & entertainment have changed. However, the same 15-day rule applies if you rent out your home to a business. You don't want to get caught up in these issues so contact your tax advisor if you are self-employed & regularly entertain clients.
Don't know where to start? - give us a call & we'd be happy to develop a great tax plan for 2018. Or visit www.findaCPAtoday.com to search for a local tax professional in your area. You may just be surprised how much it can help!