HomeAway.com is a vacation rental listings portal of nearly 450,000
properties and created the center as an information resource for those who
own property and those seeking to vacation in properties in the oil disaster
zone.
"For those property owners who purchased affected vacation rentals within
the past two years and therefore have not had sufficient time to establish
an income history, then a rental income survey should be allowed as a viable
alternative or documentation supplied by the previous owner should be
permitted in establishing a property's rental income potential," said Nancy
Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information
publisher and interest rate tracker.
However, for others who've held vacation rental property for years, BP
requires tax records and other proof of past rental income to process claims.
These are records vacation property owners should always maintain -- in this
case, so BP can compensate them for lost income.
"Should" is the operative word.
"It's difficult to ask for compensation for lost vacation rental income when
your tax return does not reflect that you ever earned any income from a
vacation rental home," said Jan Leasure, the managing broker at Monterey Bay
Property Management in California's Monterey Bay Area, another vacation hot
spot where vacation rental owners likewise would be devastated by an oil
spill.
It's not just about a disaster.
Steve Gorman, president of the Monterey County (CA) Association of Realtors,
says honesty is always the best policy. He also works in the Monterey Bay
Area.
"This should go without saying, but failure to report all of your rental
income can be income tax fraud. Ask yourself, 'Is it really worth the risk
doing it the wrong way?' The answer should be, 'Of course not. What the
heck was I thinking?' " said Gorman broker/owner of Gorman Real Estate in
Pacific Grove, CA.
More than receipts
Gorman says just filing taxes and keeping receipts isn't enough.
"You must also show the relationship between the expenses of your rental
business and the income, but don't try to pile on a bunch of personal
expenses, calling them rental expenses. The government is wise to that
approach, so be honest about what you report, Gorman said.
Some vacation property owners say BP has also asked them for "P&L"
statements.
That's a "Profit and Loss" statement which summarizes revenues, costs and
expenses incurred. The statement reveals your business's ability to generate
profit by increasing revenue and reducing costs. The bottom line, literally,
is net income, or profit.
The P&L statement is also known as a "statement of profit and loss", an
"income statement" or an "income and expense statement."
"Keeping good records of your rental income and expenses is vital if you're
in the rental business. Uncle Sam isn't going to take your word for it. You
need to prove your expenses to the taxing authorities or they will be
disallowed," said Gorman.
Tsk. Tsk.
Leasure also said, when the economy forces tax authorities' hands, you'll
wish you had the proper records.
For example, California, saddled with tens of billions of dollars of
indebtedness, recently stepped up revenue collection activities by
collecting taxes from property management companies that manage residential
rental properties owned by out-of-staters.
"The state's Franchise Tax Board directed property manages to withhold seven
percent of the rental income from out-of-state owners and send it directly
to the state. The FTB gave exemptions to property owners who could show that
they had filed California tax returns for the last two years," said
Leasure.
Leasure says it's easy for do-it-yourself-management vacation rental owners
to circumvent the normal income tax collecting process, but they might not
want to.
"There is little way for a tax agency to prove anything other than what the
property owner's records show. However, unexpected events can cause that
owner to regret that he did not claim the income," she added.
Leasure also said lenders reject loan applications from property owners who
want the lender to consider rental income that hasn't been reported on tax
records.
Said Osborne, "It should go without saying, that a property owner cannot
claim as earned income, for a mortgage loan app or as a loss for an
insurance claim, when they cannot properly document a pattern of having
legitimately received it."
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