Posted on March 23, 2005 at 19:47:14:
Buy a vacation home for your own family’s use and enjoyment, and it’s just like any other residence. You can deduct interest on a mortgage and the taxes you pay on the property. You can rent out the property up to 14 days tax free. With any luck, the home’s value will appreciate and you can sell at a profit some day. (If, by then, it has become your permanent residence, you can even exclude up to $500,000 of that gain if you meet the requirements.
If you buy the home to rent out, and use it less than 15 days yourself, you can deduct more of the expenses of running it—mortgage, taxes, repairs, even depreciation—but there are income restrictions on taking a loss.
If you use the house yourself and rent it out for more than 15 days, it’s necessary to allocate certain expenses between the two kinds of uses. There is an expectation of the owner’s active participation in managing the investment, and the income restrictions remain.