There are three possible tax situations with a vacation home. Each one has its own tax benefits and consequences.
- Don’t rent the home at all,
- Rent the home for fewer than 15 days, or
- Rent the home for more than 15 days.
If you don’t rent the home at all, then you have a second home. Your tax situation may have changed in 2018. Don’t assume everything stayed the same.
If you use your vacation home for personal use for at least 15 days and rent it out for less than 15 days, the IRS will consider the primary function of the property to be personal. It is not a rental. Therefore, you don’t report any rental income or losses.
In the case of the third example, you do need to report you rental income and expenses on Schedule E, just like any other rental.
If the property is still used for personal use, then you will need to allocate your property expenses between rental use and personal use. Any day that the property is not use for rental is considered personal use. Your costs such as mortgage interest, property tax, HOA dues and insurance will need to be allocated. Your utilities might also have to be allocated under the same formula if they can’t be directly traced to rental use and personal use.
There is one more possibility. It is possible that the property becomes solely a rental property. If you have no personal use, the down time would count as rental days for expense allocation.
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