It’s almost summer and if you are thinking about buying a vacation home you might be wondering what the tax ramifications are. Some expenses, including mortgage interest and real estate taxes, are generally deductible on Schedule A the same way they are for primary homes. You will need to watch for the dollar limits ($1 million or less, $500,000 or less if married filing separately) on the combined mortgage interest of your main home and vacation home.
You might consider renting the vacation home out during times when you aren’t enjoying it yourself. There’s a neat rule that says if you rent the property for less than 14 days during the year, you do NOT have to report the rental income. But once you go over 14 days you will need to report the rental income and expenses on Schedule E. At that point speak with your CPA to figure out how to best take advantage of that situation.
The tax filing deadline for individuals (Form 1040), partnerships and LLCs (Form 1065), and trusts (Form 1041) is next Monday, April 15, 2013. If you have not started your tax return yet you might want to consider filing an extension form. Individuals file Form 4868, and partnerships, LLCs, and trusts file Form 7004.
Why should you file an extension? By filing an extension you will avoid late filing penalties and interest. Remember, an extension to file is not an extension to pay. If you owe taxes this year you are still supposed to be paid in by April 15. If not you might owe penalties and interest. Confused? Need help? Hire a CPA. 🙂
If you make quarterly estimated payments, the fourth payment for 2012 is due today, January 15, 2013. If you need a voucher and instructions for filing estimated tax payments they can be downloaded from the IRS website here. Filing estimated tax payments helps you avoid those late payment penalties and interest that are calculated when you file your return.