2. Why Own A Vacation Property?
โบ Personal enjoyment
โบ Portfolio diversification
โบ Tax-efficiency
3. Basic Tax Consequences
โบ All second homes
โข Deductible property taxes and mortgage interest
(subject to limits and scale-backs)
โบ If rented out
โข Even if cash flow is positive, taxable income may be
zero due to depreciation deductions
5. The 14-day Rules
โบ No reportable rental if rental days are 14 or
fewer in a year
โข โRosebowl rentalโ
โบ Not a residence if personal use days are 14 or
fewer in a year: this only a rental
โบ Personal use > 14 days or 10% of days rented:
this is a residence with rental use
6. Residence
โบ Residence with rental:
โข Allocate all expenses between personal and rental
use
โข Depreciation can be taken (and is allocated)
โข Personal portion of mortgage interest and property
taxes to Schedule A
โข No deduction allowed for expenses in excess of
income, but excess carries forward
โข Excess deductions may eventually be lost
7. Rental
โบ Rental (14 or fewer personal days)
โข Allocate all expenses between personal and rental
use
โข Depreciation can be taken (and is allocated)
โข Personal mortgage interest cannot be deducted on
Schedule A (itโs not a residence!)
โข Net loss or income is passive loss or income
8. Rental: Passive Income
โบ Net passive loss can offset other passive
income
โบ Net rental loss up to $25K / year might be
deductible if:
โข Actively participate in managing the property
โข Gross income no more than $150K
โบ Real estate professionals that โmaterially
participateโ can deduct rental losses
9. Rental: Passive Income
โบ Otherwise, passive losses are suspended
โข Carry forward until there is income
โข Released when property is sold
โบ At least you do get to use them eventually!
โข Year of sale of a passive activity can be a great
tax year due to tax rate shift!
โบ But is it really a rental? More on this laterโฆ
10. Selling a Rental Property
โบ Sec 1031 exchange
โบ Convert to primary residence first to exclude
gain under IRC 121?
โข Use as primary residence for at least 2 of 5 years
preceding sale
โข BUT โ years of โnon-qualified useโ limit amount of
exclusion available
โ Use as a rental is a โnon-qualified useโ
11. Rental or Business?
โบ Short-term rentals (less than 8 days)
โข Not a โrental activityโ
โข Not eligible for deduction up to $25K
โข Canโt be grouped with other rentals to qualify as a
โmaterially participating real estate professionalโ
โบ โSubstantial servicesโ
โข Might be a business subject to self-employment taxes
12. Taxes Other than Income Tax
โบ Oregon Lodging Tax
โข 1% increasing to 1.8% in a week! (July 1)
โบ City of Portland / Multnomah County
โข Not required if gross receipts < $50,000
โข Rules relating to rental units are complex, and differ
for City and County
โบ Washington State
โข Sales/lodging taxes โ rates vary by location
โข Generally not subject to B&O Tax
13. Perkins & Co perkinsaccounting.com
503.221.0336
@PerkinsCo
PerkinsCo
LinkedIn/perkins & co
Questions?
Susan Sterne
ssterne@perkinsaccounting.com
503.221.7531