What Does the IRS Consider a Vacation Home?

When it comes to calculating the apportionment rate for a vacation home, the number of days it is rented and the fair rental value are taken into account. Vacation homes are distinct from investment properties, which are bought or built to generate rental income and capital gains from the sale of the property. If a vacation home is rented for more than 14 days a year, it must be reported on Schedule E of the income tax return. If it is not rented, it is considered a personal residence for federal income tax purposes.

Buying a vacation home can be a great investment, depending on how often it is used, if it is rented out, and how far away it is from your primary residence. The number of days you use the vacation home and the number of days you rent it will determine how your taxes are calculated. Vacation homes can include cottages, condos, single-family homes, and cabins. Generally, 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 it to be a vacation home.

It is important to consider all factors when deciding whether to purchase a vacation home. If you qualify as a vacation home rather than an investment property, you may be eligible for lower interest rates. If you have caused your vacation home ownership to be classified as personal residence rather than rental property for federal income tax purposes, you must 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

Typical travel ninja. Hardcore food enthusiast. Evil webaholic. Avid internet expert. Unapologetic social mediaholic.