IRS Tax-Free Rental Income Loophole

IRS Tax-Free Rental Income Loophole
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It is safe to assume that you might be thinking renting an apartment or house to a tourist in order to make some extra cash. However, you can’t take that step because you are worried about rental income tax implications or doing so may cost more than the actual money you make.

If the major reason why you won’t rent your house on Airbnb just so because you would have to pay your rental income tax. Then you will be pleased to know that there is a loop hole you can exploit. There is a magical loophole that you can explore, where you won’t need to file your income tax on the rental property. Better yet, you will not even have to record and report how much you earn.

However, this will only hold true if you live in that property and rent it out for up to fourteen days or less, per year.

The Masters Rule – The 14-Day Tax-Free Loophole on Rental Income

Sure, you may be think how good it is to be true, but believe or not there is a solid way around it. As per the IRS’s Topic 415, you can read all about how you don’t have to file your rental income tax on your property or report your income at all. But there are a couple of caveats, such as:

  • The property you rent must be viewed as a residence for 14 days per year
  • You will only rent the property for less than 15 days per year

But not all is cookies and brownies, if you decide to use this loophole to avoid paying rental income tax. Bear in mind that you will not be able to report any expenses to help minimize your overall taxable income. In addition, this loophole is null and void for people who want to rent a room out on daily basis or for those who rent out one property and live in another.

Moreover, the 14-day tax loophole is also a big advantage if you plan to go on a long vacation or business trip and do not want to leave your house empty. You can easily make money by renting it for 15 days and not have to pay any taxes on what you earn.

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Tax Implications if the Loophole is Not Valid For You

Sure, it does make a lot of sense to rent out a great property for more than two weeks and earn plenty of cash. However, keep in mind that you will still be able to make a ton of moo-lah even if you have to pay rental income tax. However, it is important to understand that if you do plan to rent out your house or apartment for more than 14 or 15 days, remember to file the Schedule E 1040 Form. This will help you steer clear from paying additional taxes such as self-employment tax on the money you earn. Plus, you will also be able to easily keep track of all the expenses incurred like cleaning and maintenance costs, repairs, etc.

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Pro Tip

Now that you can take advantage of this 14-day loophole and rent your apartment to a touris. The best way to spend this extra (non-taxable income) is to invest in repairing, maintaining your home. Or you could easily keep saving money on the side for your retirement or to plan a vacation of your dreams. The opportunities and endless!

If you’d like to learn more about tax laws and your business, we at Akif CPA are here to help. Learn about our services here.

Do you have unique issues or concerns not discussed in this blog then please contact us by email or phone. We are here to help.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Akif CPA will not be held liable for any problems that arise from the usage of the information provided on this page.

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