By VacationRentPayment - Powered by YapStone
Renting out your vacation home is a great way to make a supplemental income, but it is not tax-free, unfortunately. The best way to maximize your earnings is to make sure you know all the facts. So let’s examine them here!
For starters, the U.S. Federal government dictates that you must pay taxes on the income generated from renting your property. Unless your property is rented out for less than 14 days a year and is your residence, you’ll have to pay taxes. The 14-day rule is essential to know about before you get started on your journey. But if you want to make the most of your side hustle and plan to rent it more frequently, here are a few more things you should know.*
1: YOU'LL GET A 1099-K FORM
Unless you’re a tax aficionado, you might not know what a 1099 form is. So if these numbers are new to you, listen up.
A 1099 form is a series of documents the IRS refers to as “information returns.” Think of it as a way of declaring all your means of income not made through a salary paid to you by an employer. That might be your stock portfolio or mutual funds, withdrawals from a retirement account, or (you guessed it!) earnings from your vacation rental.
As a property owner, you will receive a 1099-K from your payment processor In order to issue a 1099-K, the payment processor needs your W-9 on file. Note that the full legal name or business name AND the Tax Identification Number (“TIN”) on the W-9 must match IRS records. If your payment processor does not have a valid W-9 on file with you, the IRS will require your payment processor to withhold 28% of your payments until your payment processor has your W-9 on file.
Your “doing business as” or “DBA” is not a legal name recognized by the IRS’s database, so remember to use your legal name on your W-9.
Don’t worry if the amount on your 1099-K form is higher than the amount of your rental income. The 1099-K reports gross sales and items like refunds and fees are included in the amount reported on the 1099-K, so be sure to take those into account separately when you calculate your taxable income. Your accountant is the best resource to help you with this!
If you have earned over $20,000 from your listing, and made more than 200 transactions in a calendar year, your payment processor will send you the 1099-K form. You’ll also get one if you listed your home and had taxes withheld throughout the year. More on that later.
2: YOU HAVE DEDUCTIONS
Okay, so paying tax isn’t much fun for anyone, but it isn’t all bad news. Just as with your regular returns, you get deductibles when filing your vacation rental taxes. There are a number of things you can claim deductions on, including your rent or mortgage, cleaning fees, advertising and commissions, loans, insurance, and even utilities.
Basically, pretty much anything (within reason) that helps you maintain your property and rent it out will likely be tax deductible. A brass statue or figurine? Doubtful. But installation of heating, or newly laid floors will probably count in your favor. Be sure to check with your accountant to discover what can be deducted though, as that figurine may have a place on your 1040 after all.
3: LIVING ABROAD? YOU STILL PAY TAXES
So if you’ve decided to spend some time overseas and rent out your home while you’re gone, you’ll still have to cough up. All U.S. citizens and permanent residents are subject to taxes even when on foreign soil. Just because you can order cappuccinos in your best Italian accent doesn’t mean you can dodge the IRS. Discuss with your accountant on how your property will be taxed on a federal, state, and municipal level.
4: YOU GET WITHHELD TAX MONEY BACK
If you didn’t provide all your tax information on the listing site you’re using, the listing company or payment processor probably withheld taxes from your rent payout. This is where a 1099 comes in handy. You’ll be able to account for these withholdings and claim the money back from the IRS, so you’re not charged twice on your extra income. Not paying double should be incentive enough to get your paperwork in order!
5: YOU NEED TO COLLECT TAXES TOO!
You might be required to charge an occupancy tax while a guest is renting your vacation home. Occupancy tax rates and rules vary by city, county, state, and country. Some places require occupancy tax per person or per night. It falls on you to know if you need to charge an occupancy tax or not, and make sure your guest pays it, so you can remit the taxes to the government.
Don’t let worries over taxation stop you from seeking a supplementary income. Just be sure you know all the applicable tax laws before you start dreaming what this additional income can do for you. Seek help from accountants or property management companies. Come tax season, you can breathe a sigh of relief!
Looking for more tips and tricks? Check out this video for insights On How to Be a Policy Pro
This post was written and originally published by VacationRentPayment. VacationRentPayment™ – Powered by YapStone enables property managers to securely accept and manage guest payments seamlessly through their property management software. Read the original post here.