When you think of renting out your vacation home, here are some thoughts for maximizing the tax break you could obtain:

• Compare the number of days you plan to use the home personally with the number of days you plan to rent out the home. If personal use exceeds the greater of 14 days or 10% of the time the home is rented, your deduction for the repairs, utilities, insurance, depreciation and other rental expenses is limited to the income from rental activity after deduction mortgage interest and property taxes attributable to rental use. In effect, you cannot claim a loss from the rental property, but any excess income is fully taxable.

• By modifying the amount of personal use you make of the home, you can assure full deduction of the rental expenses. Personal use days are any days on which a family member uses the property, regardless of whether or not you are paid a fair rental value by the family member. Conversely, any days you spend at the property solely to fix up the place for rental does not count as a personal use day. This is true even if family members join you and engage strictly in recreation.

• You must also be aware of the "passive activity loss rules." Passive activity losses from real estate rentals may only be used to offset passive activity income. However, if you "actively participate" in a rental activity, up to $25,000 of loss may be offset against regular income. (This is phased out for taxpayers once adjusted gross income exceeds $100,000 and is fully phased out when it reaches $150,000.) Active participation requires that you have a substantial involvement in the rental activity, including making management decisions, approving tenants, arranging for repairs, setting lease terms, etc.

For a more detailed discussion of this subject, including short-term rental tax provisions and assistance with the utilization of effective tax planning, come in for a consultation.