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A friend asked me - if he is converting a residential rental house into a vacation rental, is there any difference in tax preparation? Or would the vacation rental still be schedule E for rental income?
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For tax purposes there's no difference. If he plans to use the property himself at times he needs to get acquainted with those rules in Pub 527.


Whoa. While I almost never disagree with Phil on taxes, a vacation rental, IF treated as a business rather than mostly personal use with a couple of weeks rental, files a schedule C. To be treated as a business, personal use must be limited to two weeks or 10% of time rented, whichever is greater, and no deductions, including depreciation, can be made for that personal use time.

Have your friend pick up this book: http://www.amazon.com/Every-Landlords-Tax-Deduction-Guide/dp... Most of it covers regular schedule E landlording, but in the version I've dissected over and over again, chapter 16 covers vacation rentals which are treated as a business rather than as a real estate investment. There are also references through out the book to VRs, and the author is great about highlighting the differences where they appear.

Good luck to your friend. There is a Yahoo group that is very active for vacation rental owners: http://groups.yahoo.com/group/vacation_rentals/ and even a board I've tried to get going here on TMF, but have been too busy lately getting my VR up an running to pay much attention to, which tends to be the death knell for a new board: http://boards.fool.com/vacation-rental-management-120055.asp...

IP
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