Tax Credits for Vacation Property
Vacation property is one of the best investments there is, provided it's in a good location and can be easily rented. Renovations, upkeep and having multiple mortgages can be expensive, however. The Internal Revenue Service offers various tax credits to help offset expenses and make vacation property ownership more affordable.
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14-Day Rule
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Many homeowners stay at their vacation property during the year as well as rent it out. If they rent the property for more than 14 days out of the year, they are considered landlords. However, they receive a tax credit for those 14 days. They do not have to claim rental income for that time. If they designate it for personal use more than 10 percent of the time, the IRS considers it their personal residence.
Personal Use
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Since the amount of money saved depends on how many days the property is actually rented, it's important to distinguish between personal use and business use. The IRS considers stays personal use when the owners, their children, siblings, parents, grandparents and grandchildren stay at the property. If the owners rent the property for less than fair market value, the IRS will not consider this part of the 14 days. Trading vacation property with other vacation property owners falls under personal use, as does charitable contributions.
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Energy Efficiency
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According to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, vacation property owners are eligible to apply for energy efficiency tax credits. This law extends the tax credits for energy efficiency for 2010, but at reduced levels. The amount of the credit is based on the cost of home improvements. The maximum lifetime credit is $500. The credit for insulation, roofs and doors is 10 percent of the cost of installation. Windows must be Energy Star-rated approved to qualify for a $200 credit. Furnace and boilers that have a 95 rating in annual fuel utilization efficiency (AFUE) are eligible for a $150 credit. Air conditioners and water heaters qualify for a $300 credit.
Rehabilitation
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Historic vacation property qualifies for a rehabilitation credit. Property owners can take the rehabilitation credit for the costs of rehabilitating and reconstructing only certain buildings. The IRS considers any renovations and restorations part of rehabilitation. The credit cannot be used for building new additions, tearing down the old building or new construction. The amount of the credit is based upon the age, type and location of the building. For buildings constructed before 1936, the credit is 10 percent of the costs. If they are historical structures, the credit is 20 percent. Buildings in disaster areas qualify for various types of credits, to be determined by the local Federal Emergency Management Association.
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