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real estate taxes

July 23 2015

Track use of your vacation home to maximize tax breaks

deductions, expenses, home, real estate taxes, Vehicles

If you own a vacation home (some boats and recreational vehicles also qualify) that you also rent out to others, keep track of who uses it during the year to maximize your tax breaks.

Meet the rules and receive tax-free income. If your home is rented for 14 or fewer days during the year, you don’t have to report the income. You can generally deduct mortgage interest and real estate taxes as itemized deductions, but you can’t deduct any other rental expenses.

Limit your personal use, and deduct all your rental expenses. If you limit your personal use to not more than 14 days or 10% of the time the home is rented, all rental expenses are deductible.

Offset your rental income with your rental expenses. If you use the property for more than 14 days or 10% of the number of days it’s rented, the rules change. Your rental deductions (except for taxes and mortgage interest) are limited to the amount of your rental income.

Example: You stayed in your vacation home 20 days last year. It was rented at fair market value for 190 days. In this example, your personal use exceeded the 10% limit (19 days). Your rental deductions are limited to the rental income you received.

Convert the property to your residence, and the gain when you sell may be tax-free. If you use your vacation home as your principal residence for two out of the five years before you sell it, you may exclude up to $250,000 of gain ($500,000 for married couples) from your income. However, you will have to pay tax on gain to the extent of certain depreciation previously taken after May 6, 1997.

The rules are complex, but a basic understanding of the rules and good recordkeeping will help you get the best tax breaks from your vacation home. Give us a call if you would like more information.

Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.

June 27 2011

Will the dreaded AMT affect you?

altervative minimum tax, deduction for medical and dental, real estate taxes, sales taxes

With the attention surrounding the alternative minimum tax (AMT) year after year, you may be wondering if you’ll be snared by it in 2011. What can cause you to owe the tax?

The answer lies in items that are treated differently when calculating the AMT than they are when figuring your regular tax. Certain itemized deductions fall into this category. For instance, under the regular federal income tax computation, you can claim an itemized deduction for medical and dental expenses in excess of 7.5% of adjusted gross income.

For the AMT, these expenses must exceed 10% of your adjusted gross income, which means your deduction is limited even more.

Another example: Taxes, including real estate taxes, state income taxes, and sales taxes, are not allowed under the AMT calculation.

The same restriction applies to miscellaneous itemized deductions such as investment expenses and employee business expenses.

Your mortgage interest deduction may differ for AMT purposes, too. Why? Interest you pay on home equity loans is generally not deductible unless you use the loan proceeds to buy, build, or improve your primary or second residence.

Don’t itemize? The standard deduction is also not allowed for the AMT calculation. That’s one reason it can sometimes make sense to itemize even when your standard deduction is higher.

In addition to the items mentioned here, the IRS form used to compute your AMT liability includes other adjustments that may affect you. Give us a call for an AMT review. We can help with planning suggestions and strategies you may be able to implement before year-end.