Buying a second home is an exciting venture for many families. You may use your second home for vacation purposes, to be closer to relatives, as an investment opportunity, or to receive rental income. Whatever your situation may be, taxes on renting your property (even as an Airbnb) can be tricky.

To stay in the clear when it comes to complicated taxes, your Springfield Missouri Tax Advisor wants to make sure you know the 14-day or 10% rule.

The 14-day or 10% rule

This rule dictates whether or not your second home is considered a rental property or for personal use. You will fall under one of three category situations.

You Rent Out Your Second Home for 14 days or Less

In this category, you have only rented out your property for 14 days or less each year. The income received from these transactions does not have to be reported. There is no limit to how much you can charge. As long as you limit the total to two weeks, the IRS still considers the home a personal residence. You can continue to deduct mortgage interest and taxes on the property as you would for your first home.

You Rent Out Your Second Home for 15 days or More and Use It Less Than 14 Days or 10% of the Days Rented

In this situation, you are considered a landlord and the rental activities are viewed as business transactions by the IRS. All rental income for the year must be reported.

The upside of this situation is that you can deduct rental expenses. This includes mortgage interest, property taxes, insurance premiums, utilities, and 50% of depreciation. The complicated part is factoring in personal use. Fix-up days do not count as personal use so many second homeowners hold down leisure use by spending lots of time doing property maintenance.

You Use Your Second Home for More Than 14 Days or 10% of the Days The Home Was Rented

In this situation, your second home is considered a personal residence and deductions from rental expenses cannot be used. This personal use even includes family members staying at the property or donated use.

If you have any questions regarding taxes on your second property please contact us at Schultz, Wood & Rapp, your Springfield Missouri Tax Advisor.