The best type of income is tax-free income. Ordinarily, any rental income you receive is taxable. However, there is one little-known exception that can be particularly useful this time of year. You can rent out your vacation home for up to 14 days per year and all the rental income you receive is tax-free, no matter how much you earn. In fact, you don't even have to report the income to the IRS. This rule can provide you with a real windfall if you own a vacation home in a desirable area where people are looking for short-term rentals. However, your vacation home rental income is tax free only if, during the year: you rent out your vacation home for less than 15 days, and the home is used personally for 15 days or more. (IRC Sec. 280A(g).) Example: Claudia rents her Florida beachfront condominium for 14 days during the summer. She lives in the condo herself for two months during the year. Her condo qualifies as a tax-free vacation home. Calculating personal and rental use Determi...
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