Vacation Home Rules

If you own a beach house and rent it most of the year but use it personally for vacations, it's a 'vacation home' or mixed-use property. Tax classification depends on personal use days relative to rental days. If personal use exceeds 14 days or more than 10% of days rented, it's treated as a residence—you can deduct mortgage interest and property taxes but rental expenses are limited. If personal use is 14 days or less (and less than 10% of rental days), it's a rental property—you can deduct all expenses but lose certain primary residence benefits. Vacation home rules affect deductions, passive activity treatment, and capital gains exclusion. A vacation home's losses might be subject to passive activity limitations even if it's technically a business. Understanding these rules is crucial for mixed-use property owners—misclassification can result in disallowed deductions. Rules also define 'personal use days' and 'rental days' carefully, treating days when you're present (even if not using the property) as personal use.