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Scenario 2: Use
seldom, rent often
If your personal use of your vacation home doesn’t exceed 14 days a tax year or 10 percent of the total number of days it is rented out at fair market value, whichever is greater, your vacation home qualifies as a rental property. As the owner of a rental property, you must report the entire rental income you receive. However, you may qualify to deduct expenses related to renting, such as depreciation, utilities, repairs and property management fees.
If you end the year with a net profit from the rental income, you may deduct all your rental expenses. However, if you had a net loss, your deduction will be limited by the passive activity rule. A passive activity involves the conduct, trade or business in which you are not materially participating.
An exception applies if you actively participate in managing rental activities. In such cases, you can deduct up to $25,000 in rental losses against other non-passive income, such as wages. This deduction begins to phase out when your adjusted gross income (AGI) exceeds $100,000 and disappears completely when your AGI reaches $150,000. The passive activity loss not used cannot be carried forward to future years.
96.4%