Did you know you can rent out your property on a short-term basis tax free? Most income is taxable and reported to you and to the Federal and state tax authorities. Although, if you rent your property out for less than 15 days, that income is not taxable. Therefore, your rental is not considered a business and you won’t have to worry about business taxes. With summer coming up and Dallas being on the list of nation’s top summer destinations, renting your property tax-free might be a great way to earn some additional income!
Is renting out your home worth it? Renting out your home is a great way to earn a little extra cash without being taxed. Although before you take advantage of this tax-free opportunity, you should first think about the details. You should first construct a detailed rental agreement; require a deposit in the instance damages are made to your property; review your insurance coverage; and take your local regulations into consideration before renting out your property.
Most income is able to be taxed by the IRS, but if you follow the 14 day rule when renting out your property you are eligible for tax-free income. Even when you rent out your property for less than 15 days, you can still deduct your mortgage interest expense and property taxes as itemized deductions. Although, these tax benefits are not reduced by your tax-free rental income.
You might wonder, “why would someone want to rent out your property?” There are numerous reasons why someone would want to rent out your property, although mostly it has to do with location. Location is everything as we already know. Tourists and vacationers may want to rent out your property for the following reasons:
- If a big event is in town, fans and participants may want to rent your home while they’re visiting.
- If you own property such as a cabin or beach house at a popular vacation spot, you will certainly find tourists that would love to rent out your property.
- Travels from other cities and countries often rent homes rather than booking hotel rooms because it gives them a true local experience to the location where they’re traveling.
Airbnb is a popular vacation rental site that many people use to rent out their property to tourists. If you’re interested in learning about renting out your property, their website can better help you understand your options.
It’s important to remember that if you rent out your property for more than 14 days, all rent received is taxable and rental income tax rules apply. When you choose to rent out your property through Airbnb, they may still report the income you received to the IRS because of reporting laws. If this happens and you receive a notice from the IRS, it’s important to not panic. Many people will immediately start to panic whenever they receive a notification form the IRS. However, the rule to renting out your property tax-free is simple. If you’ve rented out your property for 14 days or less, than you don’t have to pay taxes on the income. It’s important to keep detailed records of the days that you rented out your property, so in the instance the IRS does contact you, you can provide the proof that the income qualifies for the 14-day exception.
Gurian CPA, a Dallas CPA Firm, is experienced in helping those that rent out their property as additional income. In the instance that you’ve rented out your property for more than 14 days or use rental properties as an additional source of income and need assistance, feel free to visit our site and give us a call to discuss our real estate accounting and tax solutions!
By: Paige Knight
