Tax deductions on vacation vs long term?

Question

I'm curious what differences there are in accumulated depreciation deductions in vacation rentals from long-term. Can you depreciate the value of the appliances and furnishings typically? Do you find overall that the income is taxed higher than it otherwise would have been from long term rentals?

Logan Allec · Answer

@Lee Davis

There is typically no difference assuming you are just renting out the property and not providing any other services, but if you use the vacation rental for your own personal use sometimes, you have to watch out for the 15-day rule!

• If you use it for personal use 15 days or more, and you rent it out less than 15 days during the year, then it's considered a "tax-free vacation home." All the rental income you receive is tax-free, and you report no income or expenses on Schedule E. You deduct real estate taxes as mortgage interest on Schedule A. If you have more than one vacation home, you must select the one to be treated as the second home for mortgage interest deduction purposes.
• If you use it for personal use less than 15 days OR no more than 10% of the days you rented it out, and you rent it out for 15 days or more, then it's considered a vacation home used as rental property. In this case, you can deduct the full amount of direct rental expenses such as property management fees, advertising fees, credit checks, etc. However, for other costs -- property taxes, mortgage interest, repairs, maintenance, cleaning, insurance, utilities, and yes, depreciation -- you must allocate them based on the amount of time the property was rented and the time it was used personally (using the total number of days the property was used during the year as your denominator). Expenses for the rental period go on Schedule E along with the direct rental expenses. You can deduct the property taxes for the personal use period on Schedule A along with your other itemized deductions. You cannot take an itemized deduction for mortgage interest on Schedule A, however.
• If you use it for personal use more than 14 days OR more than 10% of the days you rented it out, and you rent it out for 15 days or more, then it's considered a vacation home used as a residence. Under this scenario, you can only carry forward any losses you generate to future years, but they may only be applied to rental income from that same property. And in calculating your expenses, you must deduct them in this order: Mortgage interest and property taxes to the extent the property was used as a rentalDirect rental expensesOperating expenses to the extent the property was used as a rentalDepreciation to the extent the property was used as a rental There are some strategies that can be implemented to maximize deductions as much as possible, but the outcome won't be enormously better.
• Mortgage interest and property taxes to the extent the property was used as a rental
• Direct rental expenses
• Operating expenses to the extent the property was used as a rental
• Depreciation to the extent the property was used as a rental
• There are some strategies that can be implemented to maximize deductions as much as possible, but the outcome won't be enormously better.

• Mortgage interest and property taxes to the extent the property was used as a rental
• Direct rental expenses
• Operating expenses to the extent the property was used as a rental
• Depreciation to the extent the property was used as a rental

• There are some strategies that can be implemented to maximize deductions as much as possible, but the outcome won't be enormously better.

Lee Davis · Answer

Exactly what I wanted to know. Thanks, @Logan Allec!

Tax deductions on vacation vs long term?

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