Q:

Subject: Vacation Home Investment

 

Hi Kerry,

 

I plan to build a vacation rental in a couple of years.  The house will be used exclusively for business purposes and rented out by the day , weekend or week.  I will manage the property myself.  My question is . . . . is this activity a small business which I report out on Schedule C or a passive rental activity which I report out on Schedule E?  What is the determining factor(s).  If I have a choice as to how to report, what should I consider in making my decision?  My own research of IRS pubs seems to indicate that this should be treated as a small business but I keep seeing material on the web which seems to indicate otherwise.  Thanks.  You are the best.

 

Regards,

A:

That would be reported on Schedule C.  The break point is either that the average use of the property by renters is seven days or less, or 30 days or less and you (the owner) provide significant personal services along with the rental, such as cleaning and maintenance work.

As I constantly stress, trying to navigate the tax world without the assistance of at least one competent professional tax advisor is extremely dangerous. Your question, which any experienced tax pro could help you with, proves that you need to start working with one ASAP.   Any experienced tax pro can help you with that, as well as with maximizing all of the other kinds of deductions that are available for rental properties.

Good luck.  I hope this helps.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/30/2006 12:43:00 PM Send this post: