From the “It Seemed Like a Good Idea” Vault

No one likes to pay taxes so getting a property tax break for one’s principal residence is popular. And taken for granted.

And, given that we live where many people like to vacation, renting the home out for a couple weeks while you get away can seem like a good idea.

Be aware though that the State Tax Commission has taken an IRS rule that limits the personal use of a rental property to not more than 14 days a year and come up with a guideline that states that a property owner who rents out his or her principal residence for more than 14 days a year automatically loses the principal residence exemption (PRE) on property taxes. There is no such provision in our property tax law. It expressly bars leasing while retaining a PRE in two unusual situations (property owner in assisted living/nursing home and while home is for sale) and expressly allows leasing in one situation (active duty military away for service).

The law as written defines a principal residence as the one true home to which a person intends to return while away. There is no reason why one should not be able to rent out one’s true home for even a few months a year while traveling. Except that the local assessors will apply the State Tax Commission Guidelines to take away the PRE, leaving the owner with a fight on their hands, a fight for which there does not appear to be any binding court authority.

Therefore, when deciding if it really is a good idea to rent out your house for more than 14 day, be sure to include in the calculations the property tax hit of losing the PRE status for the house, or the legal fees to fight the State Tax Commission’s trap.

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