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Watch tax boundaries for vacation homes

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in Small Business Tax,Small Business Tax Deduction Strategies

Do you own a vacation home in the mountains or at the shore?  

Strategy: Rent out the home when your family isn’t using it. The rental income you receive can pay for most or all of the carrying costs. Best of all, you can use your rental period expenses—repairs, utilities, insurance, depreciation and so on—to offset the rental income for tax purposes. Depending on your situation, you may even be able to claim a rental tax loss.

However, as a recent Tax Court decision shows, you may fall into a tax trap for excessive “personal use,” if you’re not careful.

Here’s the whole story: If your personal use of the vacation home for the year exceeds the greater of (a) 14 days or (b) 10% of the time you rent the home, your annual deduction for rental expenses is limited to the amount of your rental income. Thus you can’t claim an overall tax loss from the rental activity, although any rental income in excess of your expenses remains fu...(register to read more)

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