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Tax Free Income For Up to 14 Days Rental of Personal Residence

Planning a vacation this summer but don't know how to finance it? Consider renting out your personal residence while you are away and pocketing the rental income tax-free!

An interesting tax break in the Internal Revenue Code provides that if a person rents out his or her personal residence for up to 14 days, the rental income is tax free and does not need to be reported on the his or her tax return. This tax break is not limited to a certain amount of income, so no matter how much income you earn during this short-term rental period, it will be tax-free as long as all other requirements are met.   

There are a few limits on using this unique tax-break. For example, the tax break can only be taken once per year, and it cannot be taken at all if the home is rented out for longer than 14 days. Further, although you are using your personal residence for rental purposes if you take advantage of this tax break, tax deductions for depreciation and operating costs are not available. On the other hand, you can still deduct expenses for property taxes and mortgage interest as normally allowed.

This tax perk is sometimes called the "Masters Provision" because so many homeowners rent out their residences in Augusta, Georgia during the Masters golf tournament to pocket some extra, tax-free cash. This is a similarly great option for Michigan residents who own cottages, lake houses, or homes near summer concert festivals and other events that attract visitors.

© 2022 Varnum LLPNational Law Review, Volume III, Number 210
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About this Author

Christopher J. Caldwell, Estate planning lawyer, Varnum
Partner

Chris is a partner and leads Varnum's Estate Planning team. Chris is acutely aware that advising clients on estate planning and wealth succession requires an intimate understanding of the client's goals, hopes, desires, and concerns in order to accurately prepare an appropriate plan. As such, he works intimately with clients and their advisors to create estate plans that enable families to plan for today as well as for future generations. Chris regularly prepares sophisticated estate plans, emphasizing probate avoidance, estate tax planning, and business succession...

616/336-6951
Laura E. Radle, estate planning attorney, Varnum
Partner

Laura is an attorney in the firm’s estate planning team where she helps individuals and families to identify their estate planning goals and to create a plan that is tailored to meet their specific needs. Laura’s practice includes a full range of estate planning and estate settlement services including the preparation of basic or complex estate plans, tax planning, business succession planning, cottage planning, charitable gift planning, and estate and trust administration services.

As a member of the Family Business Team, Laura assists business owners with the...

616/336-6415
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