Get more return.
If you’ve invested in a vacation home, you have options for recouping some expenses when you’re away. You’ve been able to deduct expenses, mortgage interest and property taxes if you limited personal use to 14 days per year or 10 percent of the time the home was rented, whichever is greater, says Molly Ward, advisor at AXA Equitable Advisors in Houston. The new tax law makes owners using a pass-through entity — sole proprietorship, LLC, or LLP — eligible to deduct an amount equal to 20 percent of the net rental income earned as a trade or business. (Check with your tax professional on your situation.) Here are seven other ways to boost your return.
Donate use of your home in a charity auction.
It’s possible to donate the use of your home to a charity event, explains Ward. But both the bidder who wins the auction, and the vacation rental owner, can only take a charitable deduction for any amount that is greater than the “personal benefit made,” Ward says. That means that if your home “sells” in a charity auction for a week for $7,500, but the market value is $5,000, you would be able to deduct $2,500. (The IRS defines personal use days as any day rented to anyone for less than fair market value, so if it’s donated as such, it doesn’t count.)
Donate the property to charity.
If you’re not interested in keeping the vacation home and want to lower your tax bill, you can donate it to a qualified charity and deduct the fair market value of the property based on a qualified appraisal, Ward says. “Sometimes this may have an additional benefit to the donor. If the property has appreciated significantly and sold, there could be capital gains taxation on the gain,” Ward says. “If the property is donated, they would eliminate the capital gain on the property, and get the full fair market value deduction.”
Rent your vacation home to an organization.
“Alcohol and drug facilities, such as detoxes, rehabs and sober livings, are always looking for homes that their clients can call ‘home,'” says Mary Beth Sales, a real estate agent with Iconic Homes LA in Los Angeles. “In Los Angeles, many organizations in the substance abuse and recovery industry rent anywhere from two to 10 homes at a time,” she says. “These organizations institute no-drugs, no-alcohol, no-parties policies. In any case, leasing your home to recovery industry organizations is an altruistic opportunity.”
Share your home with family and friends.
If you’re not using the vacation property as much as you thought, invite friends and family to share costs by offering them to buy a part of the investment, or offering to rent it to them at a daily rate or for the cost of some of the expenses, says Fritz Miller, a senior partner at Signature Estate & Investment Advisors in Pasadena, California.
Use it for business.
If you own a business and it owns the property, consider offering your house up as a reward or a retreat for clients and employees. Understand the tax treatment first: “Nearly any gift or reward that an employee receives is subject to income tax,” Ward says. The amount received should be reported on the employee’s year-end tax form and would be subject to employment taxes as well, she says. In some cases, an employee could be rewarded with an achievement award, and it might be excludable from income taxation, but there are very strict rules surrounding this that limit the employer’s cost per employee for this to $1,600 per year, Ward says.
Furnish for high-end renters.
You can rent your vacation home at high rates with the right decor, namely gray-scale furniture and a color scheme of gray, white, black, and gold, Sales says. “Let’s say the monthly cost to maintain your four-bedroom, five-bathroom home is $10,000 per month, so you typically rent it out for about $12,000 per month,” Sales says. “You have the opportunity to lease your home for $15,000 long term, or even up to $18,000 to $20,000 each month during peak seasons.”
Check in with Hollywood.
Movie filming doesn’t just happen in California, anymore. “So many more movies are filmed in states like Louisiana, Georgia and cities in Canada due to tax breaks,” Sales says. “Contact your local or regional film commission and connect with film location scouts to get your house on the Hollywood market. Production companies will pay top dollar each day to film.”
Boost ROI on vacation property.
Here are eight ways to increase your return on investment in a vacation property:
— Own with a pass-through entity.
— Donate limited use to a charity auction.
— Donate the property to charity
— Rent to an organization.
— Share the investment with others.
— Use for a business.
— Rent to high-end tourists.
— Check with Hollywood.
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