Most Americans no longer have enough deductions to make it worth itemizing.
After everything we’ve been through in the past couple of years, doesn’t it feel like the whole country needs a vacation?
But before you set sail or hit the open road, it’s crucial to consider the tax implications of this investment decision. The tax breaks that reduce the cost of your investment have changed and will now depend on how you intend to use your mobile vacation home.According to the IRS, if your boat or RV has sleeping, cooking and toilet facilities, it can qualify as a second home for taxes.
One of the most significant changes resulting from the above, along with the elimination of exemptions and the increase in the standard deduction, is that most Americans no longer have enough deductions to make it worth itemizing. Instead, they take the standard deduction. Therefore, before buying a second home, add the combined interest on your two homes, the $10k SALT tax deduction, and your charitable deductions to ensure you have enough to itemize and take advantage of the deductions.
If you rent out your vacation home more than 14 days a year, you must report the rental income on your tax return. However, you may be eligible to deduct certain rental-related expenses, such as insurance, maintenance and depreciation, to offset the rental income and reduce your taxable rental profit.
Let’s say you own a boat and operate a guided tour business showcasing a coastal area’s scenic beauty or take out others on fishing or snorkeling expeditions. Costs associated with that business on the days you operated the tours would be deductible. The IRS scrutinizes business deductions, particularly those related to mobile offices, and there are specific rules you should be familiar with. It’s advisable to consult with a tax professional who can provide guidance specific to your business.
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