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Pocketing tax-free rental income

By Kay Bell ·
Tuesday, June 11, 2013
Posted: 4 pm ET

A lot of folks swear that owning rental properties is a great way to make money. Personally, I've never wanted the hassle of taking care of someone else's housing problems.

But the federal tax code offers one situation where I might consider being a short-term landlord.

If you rent your personal residence for fewer than 15 days a year, then the income you get for those two weeks of leasing is tax-free.

That's right. You won't owe Uncle Sam a dime at tax time.

This is an especially appealing option if you live in an area that's home to a special event.

Many Philadelphia-area residents are taking advantage of this tax break this week. They are making a pretty tax-free penny by renting their homes to golf fans who want to see if the Tiger Woods and Sergio Garcia truce holds during the upcoming U.S. Open at the nearby Merion Golf Club.

Here in Austin, Texas, a lot of my neighbors rent their homes to folks who flock to Central Texas for the South by Southwest festival in the spring or Formula 1 auto race in the fall. It's also a tax benefit for residents near rotating events, such as host cities for Super Bowls and NCAA college basketball playoff games.

In all these cases, visitors are willing to shell out big bucks for a house that's close to the venue and offers amenities such as full kitchens and multiple bathrooms that aren't available at hotels.

Tax-free rental rules

The beauty of the tax break is that there is no limit on the income. If you can get a renter who will pay $10,000 for a three-day stay in your house, good for you and bad for the Internal Revenue Service.

Just make sure you follow the rules.

First, to get the full tax-break benefit, the house you rent must be your primary residence.

If your second home or vacation getaway is near the event, you can lease it for the special event, too. But if you also rent it out at other times of the year, you face different tax considerations, so check with your tax adviser.

Second, make sure you only lease your home for 14 or fewer days per year. Go past that two-week limit, and you'll need to make another call to your tax pro for details on how to report rental income and deduct associated expenses.

Third, pay attention to local rules and regulations. Many locales require that short-term landlords get a permit to lease their homes for special events.

Ignore local rental laws, and you could end up using a chunk of your tax-free rent income to pay penalty fees to your city or county officials.


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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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A. Bullock
February 06, 2014 at 8:16 pm

Can I rent the house for 14 days and let them stay for an additional 4 days for free? And it still be treated as a 14 day rental?

September 12, 2013 at 5:27 pm

I'm on a fixed income but pay all the bills, my son lives here and pays
nothing but makes about 3000 per month can I give him a 1099 for income
for his half of the bills if so if he is forced to have to pay taxes on this 1099
amount (approx 1000 per month) maybe he would get his own place
I am on social security could this be considered elderly abuse as well

R. Sherer
August 29, 2013 at 11:03 am

If a form 1099 is provided by the renter, as would be if rented by a movie production company, how is the credit deducted from gross income on the 1040? Is there a specific IRS form that must be filled-out, with the amount entered on the 1040 someplace?