Vacation Homes & Legal Tax Deductions

People who own a vacation home may be able to shield their rental income from taxes. They would need to rent out the home for no more than 14 days in the year and personally use the home for 15 days or more. You do not need to report this income if you meet those two requirements. Since the home will not be classified as a rental property, you will not be considered a landlord and will not need to complete the form known as Schedule E. Instead, you will need to claim the deduction as an itemized deduction on the Schedule A form. Since your home will be classified as a personal residence, you will not be able to claim a depreciation deduction for the property or deduct any operating expenses for it.

Personal Use of Vacation Homes

You must count a day as a day of rental use whenever you rent the home at a fair market rent, except when you are renting the home to a family member who does not live there permanently. If you rent your home to someone else for a price lower than the fair market price, all of those days will be considered days of personal use.

You can calculate the fair market rent of the home by determining how much rent someone outside your family would be willing to pay to live in the home. This may involve reviewing rental rates for similar properties in your area. While each vacation home is unique, you can get a sense of the normal range.

You can claim a day as a day of personal use whenever you are using the vacation home or whenever anyone else who owns the home is using it. If anyone in the family of any owner of the property uses the vacation home, this will count as a day of personal use unless that person lives there permanently and pays fair market rent. If you have an agreement with someone else to trade homes, such that you live in their home while they live in your vacation home, their stay in your vacation home will count as your personal use.

Last reviewed October 2024