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ENJOY DEDUCTIONS FOR VACATION HOMES

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in Small Business Tax,Small Business Tax Deduction Strategies

Q: This refers to your recent article on vacation homes. (May SBTS) In Example 1, it’s my understanding under Pub. 527 that, if the taxpayer fails the 14 day/10 percent usage test, the rental portion of the applicable mortgage interest and taxes would still be deductible, even if there is a net loss. Is this true? P.W., via e-mail

A: Not exactly. IRS Pub. 527 (Residential Rental Property) states: “If you used a dwelling unit for personal purposes, it may be considered a dwelling unit used as a home.” If it is, you can’t deduct rental expenses that exceed your rental income for the unit. Note: If your rental deductions are limited by the rules for personal usage, you still may be entitled to personal deductions for qualified mortgage interest and property taxes (but not other expenses such as upkeep and insurance). Access Pub 527 at www.irs.gov/pub/irs-pdf/p527.pdf.

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