Nov 2, 2011

If you make personal use of your vacation rental, you probably already know this affects how rental expenses can be treated in your tax return. Specifically, the IRS requires that you report the number of days of personal use. If this exceeds the greater of 14 days or 10% of the number of days the property is rented then the IRS considers the vacation rental as a home.

What you may not be aware of are all the things that the IRS considers to be a day of personal use. The following are some of the more common situations that apply to vacation rentals. All of these count as days of personal use, and some are less obvious than others.

  • Any day that someone spends at the property where they are not paying a fair rental price counts as a day of personal use. This could be friends and family, but less obviously it could also be someone that won a stay in a charity auction. See the article on Donating a Stay in your Vacation Home to Charity for more details.
  • If you swap a stay in your vacation home for a stay at another home - sometimes called a home swap or home exchange - then all the days that the other owner spends in your vacation rental count as days of personal use.
  • If you barter days at your vacation home in return for some service - perhaps work done on your vacation home, or promotional credit, then all those days count as days of personal use. You should also refer to the IRS Bartering Tax Center.
  • Days that you spend working substantially full time repairing and maintaining your property are not counted as days of personal use. However, days spent improving - not repairing or maintaining - are counted as personal use.
We are not tax professionals, so please consult one or research this for yourself further in IRS Publication 527 before completing your tax return. However, hopefully the above will help you avoid an expensive mistake.

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