Short-term rental of your home provides tax-free income
Sunday, March 10, 2013
It's South by Southwest festival time here in Austin. Each year, thousands descend on Texas' capital city and many discover our otherwise enticing city's dirty little secret: Austin doesn't have enough hotel space for all y'all.
The accommodations crush offers many Austinites a way to get a piece of the more than $190 million that's pumped into the local economy over the next two weeks. Many of my neighbors head out of town for the duration of SXSW and rent their houses to the event's attendees.
Tax-free rental income: Even better, in most short-term landlord instances, the rental money is free from federal tax.
That's right. When you rent your residence for 14 days or less, Uncle Sam gives you a pass on reporting the short-term rent money as income. And that's today's Daily Tax Tip.
I see that tilted head and cocked eyebrow. But it's true. The Internal Revenue Service's Tax Topic 415, Renting Residential and Vacation Property, says so:
"There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses."
Since SXSW's 10 days fall within the 14-day free rental income window, it's perfect. Of course, if you do have temporary renters for the full interactive/film/music festival, then you will have to be careful about also letting to temporary tenants in town for the Formula 1 U.S. grand prix in the fall.
But that calendar counting is worth the trouble.
Rental event options beyond Austin: Big bucks can be made on short-term rentals in connection with major events in Austin and the myriad film and music gatherings nationwide.
Every four years folks flock to Washington, D.C., to see a president inaugurated.
And don't forget about sports. There's the Masters golf tournament in Augusta, Ga., the U.S. Tennis Open in New York City, the Kentucky Derby in Louisville, Ky., and the city-rotating spectacles of the NFL's Super Bowl, March Madness playoff games and NCAA men's basketball finals.
So if one of these or other visitor-magnet events is in your town, escape the crazy crowds and make a bit of tax-free money to boot.
Look out for local rules: One bit of warning here. While you won't owe federal tax on your short-term rental, be sure you follow your state and local laws.
If your state doesn't exempt short-term rental income, be sure to include it on your state tax return.
And find out about your city's rules on such real estate arrangements.
Here in Austin, the city council last year passed a new short-term rental ordinance, just in time for the F1 race fan influx. How convenient for the city's treasury, but not for all the temporary landlords.
If your locale has similar regulations, follow them. If you don't, you'll be spending some of that federally tax-free money paying off hefty local fines.
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Great tip! Thank you ...
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Posted by: Jim Zaspel | LinkedIn | Sunday, April 07, 2013 at 11:57 AM