In a recent Tax Court Memorandum decision (TC Memo 2015-95), a married couple was not entitled to deduct a loss on the sale of a seasonal home because the residence was not acquired in a profit-motivated transaction nor was it subsequently converted to an income-producing rental property. This resulted in a nondeductible personal loss when it was sold for less than its original cost.
In addition, rental expenses claimed by the taxpayers were disallowed because the couple did not make a bona fide attempt to rent out the property, even though the taxpayer claimed he contracted a realtor to actively solicit the property for rent. The taxpayers were also liable for accuracy-related penalties with respect to the understatement of tax for each year.
The tax rules related to seasonal and vacation homes can be very complicated. For more information on purchasing, selling or renting a vacation home, please consult with your Schneider Downs representative. Also, please visit our Real Estate blog for more articles on related topics.