Tax Reform and Your Vacation HomeJuly 27, 2018

The Tax Cuts and Jobs Act of 2017 brought many changes to the treatment of vacation homes and second homes owned by high net worth individuals. An article published in Financial Advisor Magazine highlights key provisions with input from CPAs across the U.S., including Curchin’s Lynn Conover.

“If the property is held out as a rental (full or partial) and there is a net loss for the year, in general, most [high net worth] clients may not be able to deduct that loss in that year if there is no other passive income to offset it,” Conover said, adding that the deduction is not lost, but instead carried forward until it can be used against future rental or passive income, or the property is sold.

Conover then dispelled a myth that many vacation homeowners believe. “Rental to friends and family members for less than fair market value rent is considered personal use,” she said. “Many of my clients think that if they donate nights of stay in their vacation home/rental unit, they can take a charitable contribution. This is not the case.”

The article also discusses depreciation recapture, passive-activity loss limitations, and the possibility of tax-free profits when selling a vacation home that has been converted into a personal residence. Click here to read the full article on fa-mag.com.