Hurdles To Deduct Vacation Home Losses

Renting a vacation home allows for the deduction of certain expenses such as mortgage interest, property taxes, repairs, utilities, and insurance against the rental income. A loss may be taken if two tax hurdles are met.

Tax Hurdle #1: Personal use of vacation home cannot exceed the greater of (a) 14 days or (b) 10% of the time the home is rented out.

Tax Hurdle #2: If the taxpayer “materially participates” (i.e. spending more than 500 hours a year on the activity) in the vacation home rental activity they may avoid the passive activity loss rules that limit losses to the amount of other passive income.

Note that contemporaneous records must be kept documenting material participation.