When you rent a Second Home or Vacation Home you
may or may not have to report Rental Income
depending on how long the Property is rented

If you have any personal use of a dwelling unit (including a
vacation home) that you rent, you must divide your expenses
between rental use and personal use.  The number of days of
personal and rental use determines how you must report income
and expenses of a residential unit in which you live part of a taxable
year and rent or offer for rent for the days you do not live there.



Rented fewer than 15 days
If you rent the unit for fewer than 15 days in the taxable year, you
don't have to include any rental income you receive.  Also, you
cannot deduct any expenses (depreciation and maintenance) as
rental expenses.  Interest is fully deductible if the home qualifies as
a first or second home under the home mortgage interest rules. 

The only deductions you are allowed when you rent for less than 15
days are those that you would be allowed as a homeowner
(mortgage interest, real estate taxes, and casualty losses, if any).

Rented 15 days or more
If you rent the unit more than 15 days during the taxable year, you
will include all your rental income in your income for the year.  If
rental use exceeds 15 days and your personal use exceeds the 14
day / 10% limit described in the example at the bottom of the page,
the unit is treated as a residence rather than a rental property. 

As mentioned above, when you rent out your home for part of the
year at fair market value and also use it personally on some days
during the year, expenses are allocated between personal and
rental use.  By law, deductible rental expenses are limited by this
fraction:

The days a vacation home is held out for rent but not actually
rented are NOT counted as rental days.  The rules are simple and
as follows:

Example: Melanie owns a beach house on the Jersey shore that
she rents from June 1 to August 31 (92 days).  She uses the house
during the last two weeks of May (14 days) as well.   She was
unable to find a renter for the 3rd week in July.  The person that
rented the house for August allowed Melanie to use it over a
weekend (2 days) without any reduction or refund of rent.  The
house was not used at all before May 17 or after August 31. 
Melanie's percentage is determined as follows:

14-day / 10% Personal Use Test
Using the above example, assume that during the 2 days in August
that Melanie user her rental beach house, she didn't receive rent for
for those days.  Her personal use of the house increases from 14 to
16 days and the rental days decrease from 85 to 83.  Because she
used the beach house for personal purposes for more than 14
days and more than 10% (16/83 = 19%) of the days of rental use,
her use now qualifies as a home and not a rental.  If she has a net
loss, she will not be able to deduct all her rental expenses.  She
can carry them forward and deduct them against her rental income
next year. 

This rule is known as the "14 day/10% test".  It limits your
deductions to rental income.  Under this rule you are considered
to have used the unit as a residence if your personal use days
during the year exceeded 14 days, or, if greater, 10% of the days
on which the unit was rented to others at a fair market rental price.
When the house is treated as residence, rental expenses are
deductible only to the extent of rental income.  Thus, losses are not
allowed.

Expenses not deductible in the current year under this limitation
may be carried forward and will be deductible up to rental income
in the following year.  The deduction limit is irrelevant if your rental
income exceeds expenses.

Note that when determining days of use, any day that you spend
working substantially full time repairing and maintaining your
property is not counted as a day of personal use.  You also don't
have to count such a day as a day of personal use even if family
members use the property for recreational purposes on the same
day. 

Example: Ricardo owns a cabin in Lake Tahoe that he rents during
the summer.  He spends 3 days at the cabin each May working full
time to repair anything that was damaged over the winter and get
the cabin ready for summer.  He also spends 3 days each
September working full time to repair any damage done by renters
and getting the cabin ready for the winter.  These 6 days do not
count as days of personal use even if his family uses the cabin
while he repairs it.



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