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Tax Strategies

Tax-Free Home Rental Income [a Little Known Tax Rule]



Tax-free Home Rental IncomeIs there any place on the earth where rental income at no tax [tax-free]? You ask. The answer is “YES”. Positively “yes” if you’re qualified, of course. It’s a real windfall if you own a home in a desirable area where people are looking for short-term rentals.  A little-known tax rule allows homeowners to rent out their vacation homes or principal homes for a limited time and pay no tax on the rental income. That’s right—tax-free money! It doesn’t matter how much you earn. So, how to qualify? You ask. Read on…

To qualify for this tax-free treatment, during the year you must:


  • Rent out your home for 14 days or less; and
  • Personally use the home for 15 days or more. Internal revenue Code (I.R.C.) sec. 280A(g).)

The home can be a vacation home, second home, or your principal home.

Tax-Free Home Rental Income Case Example

Case-1: Stefan lives full-time in a condo on the beach in Hawaii. He leaves for a trip to Japan and rents out his condo for two weeks to some vacationers, earning $5,000. He doesn’t have to pay income tax on this rental income.

Case-2: Junko rents her Florida beachfront condominium for 14 days during the summer for $2,000. She lives in the condo herself for two months during the year. She doesn’t owe a penny of income tax on the rental income.


Note: Your home is considered your personal residence for tax purposes, you should not get to act like a business and deduct your operating expenses while it’s rented out, nor depreciation. You should not file schedule E as landlords do to report their income and expenses. However, you may continue to deduct your home mortgage interest and real estate taxes just like any other homeowner does.

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