Can You Depreciate a Second Home? Basis, Limits, and Recapture

Yes, you can depreciate a second home, but only if you rent it out and keep your own use of the property below specific limits set by the IRS. A vacation house you keep purely for personal getaways does not qualify. Once the property crosses into rental status, you recover the cost of the building (not the land) over 27.5 years through an annual deduction against your rental income.¹

The Usage Test That Decides Eligibility

The IRS runs the same test on your second home every year. Your property is treated as a personal residence, not a rental, if you use it personally for more than 14 days during the year or more than 10 percent of the days it is rented at fair market value, whichever number is larger.¹ Cross that line and you can still claim depreciation against the rental income the home produces, but you cannot use it to create a net loss. Stay under both thresholds and the home is a rental property, with full access to depreciation and (subject to the passive loss rules below) the ability to report a loss.

Run the numbers before the year ends. Rent the lake house for 200 days and 10 percent is 20, so you have up to 20 personal days. Rent it for only 100 days and 10 percent is 10, so the 14-day floor controls. Guessing wrong is one of the cleanest ways to lose the deduction.

What the IRS Counts as Personal Use

Personal use is broader than most owners assume. Any day you, a co-owner, or a family member stays at the property counts, even if the visit was for repairs. Renting to a relative also counts as personal use unless that relative uses the home as a primary residence and pays fair market rent.² A discounted stay for your sister is exactly the kind of arrangement that pushes you over the line. Keep a written log of who occupied the property each night and whether rent was charged. Reconstructing that from memory during an audit does not work.

The Under-15-Day Boundary

A separate rule applies if you rent the property for fewer than 15 days in the entire year. You do not report the rental income, and you cannot deduct any rental expenses, including depreciation.¹ Renting your beach house for a week each summer lets you pocket the income tax-free, but depreciation is off the table that year.

Figuring Your Depreciable Basis

Depreciable basis is the dollar amount you get to recover through annual deductions. Land never depreciates, so the goal is to isolate the value of the building.

Start with what you paid. Cost basis includes settlement charges like title insurance, legal fees, and recording fees, and capital improvements made before you place the home in service (a new roof, upgraded plumbing) get added on top.³

Then split off the land. If your sales contract breaks out land and building values, use those. When it doesn’t, most owners apply the ratio shown on the local property tax assessment: if the county assesses land at 25 percent and building at 75 percent, apply that same split to your purchase price.⁴ A professional appraisal is an alternative and can pay off if you believe the tax assessment undervalues the structure.

An example: buy for $400,000, land is worth $100,000, and your depreciable basis is $300,000.

Converting a Personal Home to a Rental

Owners who use the home personally first and rent later face a different rule. Your depreciable basis is the lesser of the property’s fair market value on the conversion date or your adjusted cost basis at that time.⁴ If the home has lost value since purchase, you are stuck with the lower figure. Subtract land from whichever number applies.

The Annual Deduction

Residential rental property depreciates over 27.5 years using the straight-line method and a mid-month convention.⁵ Straight-line means roughly the same deduction every year. Mid-month treats the property as placed in service in the middle of whichever month it actually became available for rent, so the first year is partial.

With a $300,000 depreciable basis, the annual deduction is about $10,909 ($300,000 divided by 27.5). Place the home in service in February and you get roughly 10.5 months of depreciation the first year, or about $9,545. The exact first-year percentage for each placed-in-service month is in the IRS depreciation tables.⁴ The deduction repeats each year until you hit 27.5 years or sell.

Furnishings and Appliances on a Faster Track

The building runs on the 27.5-year clock, but the stuff inside does not. Appliances, carpeting, and furniture used in a rental are five-year property under the general depreciation system.⁵

For property placed in service in 2026, 100 percent bonus depreciation is available for qualifying assets after the One Big Beautiful Bill Act of 2025 restored full expensing. That means the entire cost of a new refrigerator or a bedroom set can be deducted in the year of purchase rather than spread over five years. A Section 179 election is also available for qualifying items, though bonus depreciation applies automatically and is usually simpler.⁵ The building shell itself does not qualify for bonus depreciation or Section 179, though a cost segregation study can sometimes reclassify certain components into shorter-lived categories.

Passive Loss Limits May Cap What You Actually Deduct

Depreciation can push your rental into a paper loss, but you may not get to use all of it right away. Rental real estate is a passive activity, and passive losses generally cannot offset wages or other active income.

The main exception: if you actively participate in managing the rental, you can deduct up to $25,000 of passive rental losses against other income. Active participation is a low bar; approving tenants, setting rent, and authorizing repairs is enough. The $25,000 allowance phases out as modified adjusted gross income rises above $100,000 and disappears at $150,000.⁶

Losses beyond the allowance are not lost. They carry forward to future years and can offset passive income from this or other rentals, and any suspended losses still on the books are released and deductible in the year you sell the property in a fully taxable transaction. Higher-income owners still get value from depreciation; the timing just shifts.

Recapture When You Sell

Depreciation cuts your taxes while you own the property, and the IRS reclaims part of that benefit at sale. Gain attributable to depreciation you claimed (or were allowed to claim) is taxed at a maximum rate of 25 percent, above the long-term capital gains rate that applies to the rest of the profit.⁷ This is called unrecaptured Section 1250 gain.

The trap: even if you never claimed depreciation, the IRS reduces your basis by the amount that was allowable.⁸ Skipping the deduction while you own the property doesn’t avoid recapture. It just means you paid more tax during ownership without collecting the benefit. Claiming what you’re entitled to is almost always the right move.

Hold the $300,000 example property for 10 years, claim about $109,090 in total depreciation, and that amount is taxed at up to 25 percent at sale. Anything above it is taxed at the applicable long-term capital gains rate.

Forms You’ll File

Three forms carry the depreciation figures to your return. Form 4562 calculates the annual depreciation deduction and must be attached in the year you place the property in service; in later years, recurring depreciation can often go straight on Schedule E unless you added new property that year.⁵ Schedule E (Form 1040) is where rents, expenses, and the depreciation figure combine into net rental income or loss that flows to your 1040.⁹ Form 8582 applies when the rental produces a net loss, running the $25,000 allowance calculation and tracking any disallowed loss forward to next year.⁶

Tax software handles the interplay automatically in most cases, but the depreciation numbers you set in year one repeat for 27.5 years. Getting the basis and placed-in-service date right the first time keeps a small mistake from compounding across decades of returns.

1
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc
2
Internal Revenue Service. Personal Use of Business Property (Condo, Timeshare, Etc.)
3
Office of the Law Revision Counsel. 26 USC 1012 – Basis of Property – Cost
4
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
5
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
6
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
7
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
8
Internal Revenue Service. Property (Basis, Sale of Home, Etc.) 5
9
Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss