Owning a holiday home can be a dream come true, offering a getaway spot for vacations and potential rental income. However, it’s important to understand the tax implications and deductions available, which can vary depending on how you use the property.

Here’s a guide to help you navigate these aspects.

Not Rented Out

If your holiday home is solely for personal use and is not rented out, there’s no need to include it in your tax return until you decide to sell the property. Upon selling, you’ll need to calculate your capital gain or loss. It’s crucial to maintain thorough records from the time of purchase to the sale date to accurately determine your capital gain or loss.

Rented Out

Renting out your holiday home introduces additional tax considerations. You must report the rental income you receive in your tax return. Moreover, you can claim expenses related to the rental activity, but the extent of these deductions depends on several factors:

• Partial-Year Availability: If your property is available for rent only part of the year.
• Private Use: If you use the property for personal purposes during the year.
• Partial Property Use: If only a portion of the property is rented out.
• Discounted Rent: If you rent the property to family or friends at a rate below market value.

Certain expenses directly related to the rental periods are fully deductible, such as:

• Real estate commissions
• Advertising costs for tenants
• Phone calls to tradespeople for tenant-related repairs
• Costs of removing rubbish left by tenants

However, expenses associated with personal use periods or when the property isn’t genuinely available for rent are not deductible. Examples include cleaning after personal use or repairs for damages you caused.

Not Genuinely Available for Rent

Expenses can still be deductible during periods when the property is not rented out, provided it is genuinely available for rent. Several factors might indicate that a property isn’t genuinely available for rent, such as:

• Limited advertising exposure (e.g., only at your workplace or on restricted social media groups)
• Advertising outside peak rental periods when demand is low
• Poor location, condition, or accessibility making it unlikely to attract tenants
• Unreasonable rental conditions (e.g., overly high rent, stringent conditions like ‘no children’ or ‘no pets’)

These factors suggest that the primary intention might not be to earn rental income but rather to keep the property available for private use.

Conclusion

Owning a holiday home comes with a range of tax implications based on how the property is used. Understanding the nuances of deductions and ensuring your property meets the criteria for being genuinely available for rent can help maximize your tax benefits. Lakeshores Accommodation keeps detailed records and we suggest consulting with a tax professional to navigate the specific requirements related to your situation.