With sites such as VRBO, Home Away and Airbnb, there has been a rise in the number of residential and vacation rental homes. If you are considering renting out a vacation home or personal residence, you should be aware of the tax implications.
First determine if the dwelling unit is used as a residence. The dwelling unit is considered to be used as a residence if the taxpayer uses it for personal purposes during the tax year for more than the greater of: 14 days or 10% of the total days rented to others at a fair rental price. So even if the dwelling is not your primary residence, but rather a vacation home, if you use the dwelling personally for 15 or more days and 10% or more of the total days rented, it would be considered as being used as a residence.
If the dwelling was used for personal purposes for less than 14 days or less than 10% of the total days rented, the dwelling would be considered exclusively as rental property. See the IRS Publication 527, chapter 3 for information on how to report rental income and expenses.
If the dwelling is considered a residence and you rented it out for less than 15 days during the year, its primary function is not considered to be a rental and you do not include your rental income and you cannot deduct any of the expenses as rental expenses. The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses.
If the dwelling is considered a residence and you rented it for 15 days or more per year, it would be considered a partial rental. You must divide your expenses between the rental use and the personal use. For information on how to allocate the expenses, see IRS Publication 527, chapter 5.
Additional IRS resources:
- Use the IRS Interactive Tax Assistant to determine “Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?“
- Topic 415 – Renting Residential and Vacation Property
- Rental Income and Expenses – Real Estate Tax Tips
- IRS YouTube Video on Renting a Vacation Home