If you rent out a vacation home, specific rules will determine the tax treatment.
Residential property. Using your vacation home for more than 14 days or 10% of the total days that it’s rented at a fair price, whichever is greater, will cause that home to be taxed as a residence. For a vacation home classed as a residence, expenses can be taken only up to the amount of rental income; excess expenses can be carried forward to years in which rental income exceeds expenses.
Rental property. If your personal use is no more than 14 days and you rent your vacation home more than 14 days, you have a rental property. Even if your personal use is more than 14 days, you have a rental property if personal use is no more than 10% of rental days.
Again, expenses can offset rental income. With rental property, though, losses may be deductible if expenses exceed rental income.
The “passive-activity” rules restrict such losses to $25,000 per year and most taxpayers lose $1 worth of passive-loss deductions for each $2 their adjusted gross income (AGI) tops $100,000. At $150,000 of AGI, no passive losses are deductible.
