What is a vacation home for tax purposes?

Personal use during the year exceeds the greater than 14 days or 10% of the days you rent the house at fair market prices. If you rent your home for at least 15 days and personal use days qualify your home as a residence, vacation home rules apply. Some vacation homes may be considered investment properties, but not all investment properties are vacation homes. Tax deductions for a second home vary greatly depending on how much you use it and if you rent it.

Deductible expenses would include the rent portion of qualified mortgage interest, real estate taxes, and incidental losses. 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 rent your vacation home, you must use the home more than 14 days a year or more than 10% of the number of days the home is rented to claim the deduction, but additional rules may apply. Vacation homes, on the other hand, are considered a second home that the landlord uses for recreational purposes, such as holidays or holidays for a short duration during the year.

The internal revenue service may classify the home as a personal residence or rental property for tax purposes. Vacation homes are a secondary residence that landlords occupy for a few days or weeks in a year, and are different from the primary residence. The vacation home can be a condominium or a cottage, and the landlord can rent it to generate income when it is not being used. When a vacation home owner sells the property, they must plan for capital gains, which must be reported to the IRS.

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. Because vacation homes are only used at certain times of the year, many homeowners rent these homes when they are not using them. If you get a home equity loan with a vacation home, you may be able to deduct the interest paid on the loan. If the vacation home is rented for a period that exceeds the 14-day limit or 10% of the number of days the property is rented, the landlord must report rental income to the IRS using Schedule E.

For more information on offering residential property for rent, see Publication 527, Residential rental property (including vacation home rentals).

Cathleen Testa
Cathleen Testa

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