Second Home Requirements

For a residence to qualify as a second home, the taxpayer must:
1) Not rent the home to anyone during the year.
2) If your rent the home out, you must personally use it at least two
    weeks a year or 10% of the number of days the residence is
    rented out to others, whichever period is greater.

Rental Income May Not Be Taxable
Note that you must rent it at a "fair" rental price.  Also note that if
your home is used by you as a residence and the rental use of
your home during the tax year is less than 15 days, the rental
income is not taxable!!!

If you rent out the second home at any time during the year and do
not use it long enough, the second home will be considered an
investment property by the IRS.

Fair Rental Price
As mentioned before, you must rent your vacation property at a
fair rental price.  A fair rental price for your property generally is
the amount of rent that a person who is not related to you would
be willing to pay.  The rent you charge is not a fair rental price if
it is substantially less than the rents charged for other properties
that are similar to your property. 

Second Home / Vacation Home Examples
The following examples show how to determine whether you used
your rental property as home.

Example 1 - Standard deductions apply:
Rick bought a vacation home in Lake Tahoe for $300,000 in 1995.
He pays real estate taxes of $6,000 on the home and home
mortgage interest amounting to $13,000 annually.  Since he doesn't
rent out his vacation home, both the real estate taxes and home
mortgage interest qualify for deductions amounting to $19,000.

Example 2 -  Rental Income is TAXABLE:
Patricia converted the basement of her home into an apartment with
a bedroom, a bathroom, and a small kitchen.  She rented the
basement apartment at a fair market price to Susie.  She rented to
Susie on a 9 month lease (273 days).  Using the 10% second home
requirement, Patricia determined that the total days rented to
others at a fair rental price is 27 days (273 days x 10%).

During June, Patricia's sister Mikenzie stayed with her and lived in
the basement rent free. 

Patricia's basement apartment was used as a home because she
used it for personal purposes for 30 days.  Rent-free use by her
sister is considered personal use.  Her personal use of 30 days is
more than the greater of 14 days or 10% of the total days it was
rented (27 days).

Example 3- Rental income NOT TAXABLE:
Using Ricks scenario from example 1 above, let's assume that Rick
uses the vacation home 2 months during the summer and also uses
it during the spring.  Rick also rents the house during the winter for a
total of 14 days for $300 a day resulting in an amount of $4200 (14 x $300).
Since Rick rented out the home less than two weeks and personally
used it at least two weeks, the $4,200 in rental income is not taxable. 
Thus, Rick's deductible expenses and tax free income results in an
aggregate amount of $23,200.

Example 4 - Failure to meet the requirements:
Again using Rick's info from example 1 above, let's assume Rick
rents his second home out in the winter for five weeks and he uses
it only for 1 week.  Since Rick failed to meet the requirements for the
second home test he will be limited in the amount of deductions he
can take.  He will also have to report the rental income as well.  His
house will be treated as a rental property.  This type of example
is covered in the Rental Property section of the Real Estate
Owner website under the "Rental Property Scenarios" section.



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