Renting your home allows you to secure an extra stream of income that you can use to pay or maintain your mortgage. But most of the time, the IRS is entitled to part of it when you earn money.
Normally the same goes for renting out your home. You usually have to report rental income on your taxes and if you do not, if the IRS finds out you risk serious penalties.
But here is some good news — you can manage to avoid leasing taxes on your rental income if you are willing to rent out for just a limited time. This is how to pull it off:
Rule of 14 days
Some people who rent their homes do this at full time. For example, if you have a finished cellar in your home, you could secure a long term tenant who pays for your rental each month.
By contrast, you can avoid taxes on your rental income if you only want to be a (very) part-time landlord if you rent the property 14 days or fewer a year. These 14 days do not have to be consecutive; you just have to keep the 14-day limit so that you do not pay taxes on your income.
A second requirement is also there: you must use the home yourself for at least 14 days a year or at least 10% of the time you rent it to others.
It doesn’t matter if you rent a single room or a whole house in your home. You are considered one of the 14 days you receive in rental income before taxes start.
The advantages of short term rentals
Some property owners want steady, steady revenue. If you’re one of them, 14 rental days won’t be enough. But if you are not desperate for consistent rental income, it can work in your favor to take in short-term tenants.
For one thing, you can make it available on prime weekends if you only want to rent your home on 14 days or less when you can command top dollars. For example, if you live next to a beach, you may list your home in July and August for selected weekends when renters will pay more for it. Similarly, you can rent your home for holidays and enjoy more if you live near a ski resort.
Short-term rentals also mean that you don’t have to be a full-time landlord. This is good if you don’t have the time or the patience to deal with permanent tenant problems.
The best thing is to find short-term renters these days, thanks to sites such as Airbnb, HomeAway and Vrbo. Just be aware that you will cut your profits if you list your home on these sites. But it is probably your best bet to attract weekend residents.
It is usually difficult to get out of taxes. But you won’t have to pay the IRS a dime of money if you only rent out your home for 14 days over the course of a year.
Please keep in mind the 14-day rule if you are just looking for side income and do not want to report on rental income when it comes to file your tax return.
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