Planning how your vacation home will be used in advance may help save money on tax returns, according to MarketWatch's Bill Bischoff.
Different kinds of vacation properties fall into specific categories with tax rules, determined by personal and rental usage during the year. Bischoff explains that if your home fits into Category 1, meaning you rent it for more than 14 days during the year and your personal use exceeds the greater of: (1) 14 days or (2) 10% of the rental days, then you will probably come out ahead with taxes for the year. He says:
You’ll receive more rental income (good for cash flow), and you can probably still offset all the rental income with allocable mortgage interest and property taxes, direct rental expenses, and indirect expenses. So you’ll have that much more tax-sheltered rental income, which is always a good thing. But make sure to keep your property in Category 1 status by having enough personal-use days to exceed 10% of the rental days. If necessary, mixing in a few more personal-use days (maybe between now and the end of the year) should not be too much of a hardship.