What Is a Vacation Home? IRS 14-Day Rule and Deductions

Under IRS rules, a vacation home is a dwelling you own and personally use for more than 14 days a year, or more than 10 percent of the days you rent it at fair market price, whichever is greater. That threshold, set by Section 280A, decides whether the property is treated as a second residence or a rental, and it controls what income you must report, what expenses you can deduct, and whether you can claim a loss.¹

The 14-Day or 10 Percent Test

A property counts as a residence if your personal use for the year exceeds the greater of 14 days or 10 percent of the total days it was rented at a fair price.¹ Rent a lake cabin for 200 days and you need at least 21 personal days (10 percent of 200) to keep the residence classification. Rent it for only 100 days and the 14-day minimum controls.

The classification matters because it caps what you can deduct. When the property qualifies as a residence, rental expense deductions cannot exceed rental income for the year, so the property cannot generate a tax loss. If personal use falls below the threshold, the IRS treats the property more like a business asset, which may allow rental losses subject to passive activity rules. Which outcome is better depends on whether you earn more from renting or save more from deducting.

What Counts as Personal Use

Personal use is defined broadly, and this is where owners most often miscount. Any day you, a co-owner, or a family member of either uses the property counts as a personal day, whether or not rent changes hands. If your brother stays at your beach house for a week and pays you $1,500, those seven days are still personal use unless he uses the property as his principal home and pays fair market rent.²

House swaps count too. Let someone use your cabin in exchange for a week at their condo and every day of that arrangement is personal use on your side, even though you never set foot on your own property.¹ Renting to anyone at below-market rates triggers the same result. The only days that don’t count as personal use are days you spend doing substantially full-time repair and maintenance work, even if family members happen to be at the property while you work.

The 14-Day Tax-Free Rental Rule

Rent the property for 14 days or fewer during the year and the rental income is completely excluded from gross income. You don’t report it, and you don’t pay federal tax on it.¹ Someone renting a mountain cabin during a major festival or a coastal property during peak season can collect several thousand dollars with no federal tax consequences.

The trade-off is that no expenses tied to those rental days are deductible. No depreciation, no cleaning costs, no advertising fees. For the year, the property is treated purely as a personal home.² Cross the 15-day line and every dollar of rental income becomes taxable, and you must begin splitting expenses between personal and rental use on Schedule E.

Deductions Once You Rent for 15 Days or More

Rent for 15 or more days and total expenses must be allocated between personal and rental use based on the number of days in each category. Only the rental portion is deductible against rental income, reported on Schedule E.² The personal portion of mortgage interest and property taxes can still go on Schedule A if you itemize.

When the property qualifies as a residence under the 14-day or 10 percent test, rental expense deductions cannot exceed gross rental income for the year. Unused deductions carry forward, but you cannot create a net rental loss.¹ Not reporting rental income at all exposes you to an accuracy-related penalty of 20 percent of the underpayment.³

Mortgage Interest and Property Taxes

Mortgage interest on a vacation home is deductible on the same terms as your primary home, but the deduction applies to the combined mortgage debt across both properties. For loans taken out after December 15, 2017, the combined cap is $750,000, or $375,000 if married filing separately.⁴ Owe $500,000 on your main home and only $250,000 of a vacation home mortgage qualifies for the interest deduction.

Property taxes on a vacation home are deductible but fall under the state and local tax cap, which limits the combined deduction for state income taxes, local taxes, and property taxes to $40,000, or $20,000 if married filing separately.⁵ Owners in high-tax areas often hit the ceiling on their primary home alone, leaving no room for vacation home property taxes.

Selling a Vacation Home

No Automatic Capital Gains Exclusion

The $250,000 capital gains exclusion, or $500,000 for married couples filing jointly, that shelters profit on a home sale applies only to a principal residence you have owned and lived in for at least two of the five years before the sale.⁶ A vacation home you never converted into your primary home does not qualify, and the full gain is subject to capital gains tax. For 2026, the federal long-term capital gains rate is 0, 15, or 20 percent depending on taxable income.

Convert the vacation home to your primary residence and live in it for two years before selling and a partial exclusion is available. Gain attributable to “periods of nonqualified use,” meaning years the property was not your principal residence, still does not qualify.⁶ Own a home for ten years and live in it as your primary residence for only the final two, and roughly 80 percent of the gain remains taxable.

The 1031 Exchange Safe Harbor

A vacation home can qualify for a like-kind exchange under Section 1031 if it meets the safe harbor in Revenue Procedure 2008-16. The property must have been owned for at least 24 months, rented at fair market value for 14 or more days in each of the two 12-month periods before the exchange, and personal use during each of those periods cannot exceed the greater of 14 days or 10 percent of rental days.⁷ The same rules apply to the replacement property for 24 months after the exchange. Meeting the safe harbor lets you defer capital gains by rolling the proceeds into another qualifying property.

The 3.8 Percent Net Investment Income Tax

Rental income from a vacation home and capital gains from selling one are both classified as net investment income and can trigger an additional 3.8 percent surtax if your modified adjusted gross income exceeds the applicable threshold, $200,000 for single filers and $250,000 for joint filers.⁸ Any portion of a sale gain that qualifies for the Section 121 principal-residence exclusion is exempt from this surtax. For a property that was never your primary home, the entire gain is exposed.

Records That Prove the Classification

Because everything turns on how many days fall into each category, a daily log is the most important document you keep. Track every day spent at the property and label it as personal use, rental, or maintenance. This log is what you rely on if the IRS questions whether the property qualifies as a residence or disputes your expense allocation.²

Keep copies of every rental agreement, including the nightly or weekly rate. These contracts show that tenants paid fair market value, which matters both for the 10 percent calculation and for proving that family stays were genuinely arm’s-length. Utility bills, travel receipts, and credit card statements near the property serve as backup evidence of your physical presence. Dull to maintain, and invaluable the one time someone asks for them.

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. Topic No. 415, Renting Residential and Vacation Property
3
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
4
Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
5
Internal Revenue Service. Topic No. 503, Deductible Taxes
6
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
7
Internal Revenue Service. Revenue Procedure 2008-16 – Safe Harbor for Dwelling Unit Qualification Under Section 1031
8
Internal Revenue Service. Net Investment Income Tax