Owning a vacation home in San Diego certainly comes with its perks. Not only are you close to pristine beaches and gorgeous mountains, but the nearly perfect weather makes each family outing a pure delight. But what about when you’re not on vacation? What should you do with the beautiful house you just bought?
Many homeowners have found the perfect solution: Rent out your vacation home!
There’s a reason this idea is so popular, with 600,000 Americans renting out their properties to short-term guests each year! Renting out your vacation house can easily provide tens of thousands of dollars in extra income each year if you know what you’re doing.
But that’s the key—you need to know what you’re doing.
So before you dive headlong into renting out your vacation home, it’s important that you do your research. Here are four topics you should research and talk to a professional about before taking the rental leap:
Tax Laws When Renting Out Your Vacation Home
Make sure you talk to an accountant to understand how your new venture will affect your taxes.
The IRS dictates that you can deduct the interest on up to $750,000 for a mortgage. Let’s say your primary mortgage is $600,000, and you already deduct the interest on that. You can then only deduct the interest of up to $150,000 for your vacation home mortgage.
Exactly which expenses you can deduct on your tax return also depends on how many days of the year you stay in your vacation house vs. rent it out.
Rented for 14 days or fewer — you don’t need to report the rental income on your taxes.
Rented for over 15 days, used by owner fewer than 14 days — you must report to the IRS all your rental income, but you can deduct related expenses and rental loss.
Used by owner more than 14 days or 10% of rented days — you can deduct rental expenses but not rental loss. (Read this article to get a better understanding of these three categories!)
Short-Term Rental Insurance
Make sure you have adequate coverage if you plan to rent out your vacation home. In addition to homeowners insurance and landlord insurance, you should also look into short-term rental insurance.
This type of policy can protect you from rental losses and damage from guests. Be sure to shop around with several providers to find a policy that covers exactly what you need. You don’t want to pay for coverage that doesn’t even apply to you!
Finding Your Ideal Renters
Realize that you won’t be the only one enjoying your new home. You’ll want to choose decorations and furniture for your home that not only appeals to you and your family but also to renters who stay there. That means staying up to date on current décor trends.
Once your home is ready for visitors, you can advertise it on sites like Airbnb, VRBO, HomeToGo, TripAdvisor, Expedia, and others.
Vacation Rental Property Maintenance
Next, you should think about how you’ll maintain the property. If you live nearby and have the time to take care of the home, being your own property manager will help you keep your expenses as low as possible.
The other option is hiring a property management team that will deal with the administrative aspects of renting it out. While hiring a property manager isn’t cheap, it’s sometimes the only answer for owners who live far away or simply don’t have time to handle the tasks themselves.
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