Tax Implications of Owning a Vacation Home

Chances are if you have a second home (one that may have been inherited or purchased with the best of intentions) you’ve considered the extra income stream with services like AirBnb or VRBO.

Not too long ago if you had a second home that was in a desirable location you would need to enlist the services of a property management company to rent out your property. Now with companies such as AirBnb and VRBO (just to name a few) you can turn the extra room in your house into some extra cash. However here are some items to consider before taking the jump.

When you use a home for both rental and personal use, regardless of that home’s location at the beach or in the city, you run into the tax code’s vacation home rules that make that home either a residence or a rental property.

It’s a residence when you;

  • Rent it for more than 14 days during the year
  • Use it for personal purposes for more than 14 days
  • 10 percent of the days that you rent the home out at fair market rates.

Example. You own a beachfront vacation condo. During the year, you rent it out for 180 days. You and members of your family stay there for 90 days. The property is vacant the rest of the year except for seven days at the beginning of winter and seven days at the beginning of summer, which you spend maintaining the property. Your condo falls into the tax code–defined personal residence because

  • You rented it out for 180 days, which is more than 14 days, and
  • You had 90 days of personal use, which is more than 14 days and more than 10 percent of the rental days.

Disregard the 14 days you spent maintaining the place.

The key principle that applies when your vacation home is a personal residence is that expenses other than mortgage interest and property taxes allocable to the rental use cannot exceed the gross rental income from the property. In other words, rental operating expenses and depreciation cannot cause a tax loss on Schedule E of your Form 1040 for the year in question.

If you need assistance on how your ‘vacation home’ can be considered a ‘vacation home’ or investment and not a personal residence our team of tax advisors is happy to help. Reach out to us at and we’d be happy to assist.


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