How does irs define vacation home?

To calculate the apportionment rate, divide the number of days you rented the home by the fair rental value by the total number of days used for personal and business purposes. Vacation homes are different from investment properties that are bought or built to generate rental income and gain capital gains from the sale of the property. Vacation homes rented for more than 14 days a year usually file Schedule E with their income tax return. If you own a vacation home that you don't rent during the year, it's obviously treated as a personal residence for federal income tax purposes.

There are many situations where buying a vacation home can be a good option for you, especially when you are looking to make an investment. How often you use it, if you rent it, and even how far away it is from your primary residence can affect the status of your property as a vacation home. If you get any rental income from the vacation home, you'll also need to know the rules that govern how that income is taxed. In other words, the number of days you personally use your vacation home and the number of days you rent will determine how your taxes will be charged.

While owning a vacation home may seem attractive, it's important to consider the factors that make this type of property different from other types of homes. If you qualify as a vacation home rather than an investment property, you may be eligible for lower interest rates. For example, homes that qualify as vacation homes include cottages, condos, single-family homes, and cabins. In general, if the landlord occupies the vacation home for more than 14 days a year or at least 10% of the time it is rented, the IRS considers the property to be a vacation home.

You may have caused your vacation home ownership to be classified as personal residence rather than rental property for federal income tax purposes. See Income and Expense Allocation, below, to learn how to report income and expenses related to your personal residence vacation home on your federal tax return. Usually, a vacation home is located in a different location away from the main residence and is used for a few days or weeks in a year.

Cathleen Testa
Cathleen Testa

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