We all know that the majority of income we receive is taxable. We report it to the state and federal tax authorities, and hopefully we’re able to keep that liability low. But did you know that you can actually rent out your home or vacation property in a way that’s totally tax-free?
The Tax-Free Property Rental Rule
Options for short-term rentals can be a great way to earn some extra cash. As an added bonus, you’re able to keep that money tax-free. You just need to be aware of the tax code.
The rule is pretty straight-forward. It’s based on the number of days you’re renting out your property in any given year. If you’ve received less than 15 days of rental income in a single year, then that money will generally not be taxable.
In addition, you’ll likely still be able to deduct the expenses for your mortgage interest and your property taxes, as itemized deductions. The rental rule doesn’t affect those existing tax benefits. But again—that’s only as long as your rental activity was no more than two weeks.
Ideas for Renting Out Your Property
A lot of people who are traveling for certain events may not be interested in staying at a hotel. They might want another kind of experience. There are plenty of opportunities for renting out your home, your cabin or cottage, or even just a room in your home.
· Sporting events
· Music concerts
· Golf tournaments
· Business conferences
· High school events
The greater Indianapolis area is definitely a “prime location” for short-term property rentals. The city regularly hosts big football and basketball games. Plus, there’s the Indianapolis 500. The city is large enough to be a key destination for business events and other expos too. And not everyone will want to go with the standard hotel option for their lodging. That’s why offering up your own property for renting can be really advantageous here!
It’s a win for you because you can earn some extra money. It can also be more convenient for people who want a true “local” side of things. Depending on your location, it could also help them be closer to where they want to go.
When done right, you might even be able to establish a long-term relationship with repeat renters. They’ll have a reliable place to stay, and then you can hopefully count on making some extra income on a yearly basis. Still, it’s important to understand the risk factors and types of hassles you might experience along the way.
Time to Talk with Your Tax Professional?
It’s always wise to have a clear rental agreement in place. Collecting a damage deposit upfront is also helpful. You want to have assurance that your renters are going to be responsible. Still, accidents happen. Reviewing your current homeowner’s insurance policy could give you some extra peace of mind.
What’s more, before you begin looking for potential renters, you need to follow-up with your local regulations regarding property rentals.
After all of that, be sure to check in with your tax professionals too! Whether you’re here in the Fishers, Indiana area or the greater Indianapolis metro, know that NSO & Company is here to help! We even work with clients who are out of state. Let’s make sure you’re getting the right benefits and credits on your tax return. And that you’ll be able to keep as much of your annual earnings as possible!
