Say you own a three-bedroom home and rent two bedrooms to third parties at fair market value.
Depending on the length of the rentals and the people to whom you rent, the tax code treats your bedroom rentals either
as subject to the vacation home rules that limit deductions to income and that can also disappear the deductions, or
as exempt from the vacation home rules. When exempt, the deductions move along a perilous path to possible full deductibility.
If you have a bedroom rental activity, the last thing you want to happen is for your tax deductions to disappear. That’s what can happen when your bedroom rentals are subject to the vacation home rules. In this article, we help you understand those rules and how to avoid trouble.
Once you escape the vacation home rules, your first hurdle along the road to deductibility is the for-profit test. When you pass the for-profit test, your deductions survive in full but there’s a timing question of when you can realize your deductions in full.
This article gives you the rules of the road on bedroom rentals in plain English. You will learn what to do and what not to do. This way you can get the best possible after-tax cash result. ... Log in to view full article.