Vacation homes are a great way to enjoy a getaway and make some extra money. But when it comes to taxes, there are some important things to consider. Vacation homes are classified as either a personal residence or a rental property for tax purposes. The Internal Revenue Service (IRS) may consider your vacation home a personal residence if you use it for more than 14 days or 10% of the days you rent it out at fair market prices.
If you rent your vacation home, you must use the home more than 15 days a year or more than 10% of the number of days the home is rented in order to claim the deduction. To avoid exceeding the 10% limit, you should essentially not use your vacation home more than one day for every 10 days you rent it. If you get a home equity loan with a vacation home, you may be able to deduct the interest paid on the loan.Deductible expenses would include the rent portion of qualified mortgage interest, real estate taxes, and incidental losses. When a vacation home owner sells the property, they must plan for capital gains, which must be reported to the IRS.
For more information on offering residential property for rent, see Publication 527, Residential rental property (including vacation home rentals).