How Much Can You Write Off on a Second Home?

How much you can write off on a second home depends on how you use it. A home kept purely for personal use gets you mortgage interest and property taxes on Schedule A, nothing more. A property you rent out unlocks operating expenses, depreciation, and travel costs on Schedule E. And a mixed-use home sits somewhere between, with expenses split by a formula. For 2026, the mortgage interest deduction covers up to $750,000 in combined loan balances across your primary and second homes, the state and local tax cap is $40,400 for most filers, and rental properties allow full expense deductions against rental income.

Personal-Use Second Homes

If you never rent the property, or rent it fewer than 15 days a year, your deductions are limited to the same itemized items available on your main home. You claim them on Schedule A.

Mortgage interest is the biggest one. You can deduct interest on acquisition debt (money borrowed to buy, build, or substantially improve a qualified residence), but the $750,000 cap applies to the combined balances on your primary and second homes. A $500,000 mortgage on your main house plus a $400,000 mortgage on the vacation home totals $900,000, and only $750,000 of that qualifies. This limit came from the Tax Cuts and Jobs Act for loans taken out after December 15, 2017, and was made permanent in 2025. Mortgages that predate that cutoff still follow the older $1 million combined limit.¹ Home equity loan interest is not deductible unless the borrowed funds went into substantial improvements to the home securing the loan.

Property taxes on the second home are deductible but fall under the SALT cap. The 2026 limit is $40,400 ($20,200 if married filing separately), and it covers property taxes plus state income or sales taxes combined. If your modified adjusted gross income exceeds $500,000, the cap phases down by 30 cents per dollar over that threshold, with a floor of $10,000.²

Everything else on a personal second home is a non-deductible personal expense. Utilities, homeowners insurance, maintenance, HOA fees, cleaning — none of it produces a tax benefit if the home is used solely for your own enjoyment.

The 14-Day Rental Exception

Rent the home for fewer than 15 days in a year and the rental income is completely tax-free. You don’t report it at all. There is no dollar cap. Owners near a major annual event can collect two weeks of peak-rate rent and owe nothing on it.³

The trade-off: no rental expenses are deductible either. Your normal mortgage interest and property tax deductions on Schedule A stay intact, but cleaning fees, supplies, and other rental-tied costs get you nothing. This works best if you rent only during peak-demand windows rather than running the property as an ongoing income source.

Rental Second Homes

If you treat the property as a rental, deductions expand substantially. To be classified as a pure rental, your personal use during the year must stay below the greater of 14 days or 10% of the days the home was rented at fair market value.⁴ Rent it 200 days and you can use it personally for up to 20 without losing rental status. Days spent doing repairs and maintenance don’t count as personal use.³

Once classified as a rental, income and expenses go on Schedule E. Every ordinary and necessary cost of operating the property is deductible against rental income: property management fees, advertising, insurance, utilities, cleaning between tenants, legal fees for leases, and tax prep fees for the Schedule E itself. Travel to manage or inspect the property is deductible at the 2026 IRS standard mileage rate of 72.5 cents per mile.⁵

Depreciation

Depreciation is usually the single largest rental write-off, and it requires no cash outlay. Residential rental property is depreciated straight-line over 27.5 years.⁶ Only the structure depreciates, not the land, so you split the purchase price between the two. County tax assessments are commonly used for that split.

A $500,000 purchase with $100,000 attributable to land gives a depreciable basis of $400,000, or about $14,545 a year in depreciation ($400,000 divided by 27.5). If the property is mixed-use, only the rental-use percentage of that figure is deductible. Every dollar of depreciation you claim also reduces your cost basis, which raises the taxable gain when you sell.

Repairs Versus Improvements

A repair keeps the property in its current condition: fixing a broken pipe, patching drywall, replacing a few shingles. Repairs are fully deductible in the year you pay them.

An improvement adds value, extends the property’s life, or adapts it to a new use: a new roof, a full kitchen remodel, a new deck. Improvements can’t be deducted immediately. You add the cost to basis and depreciate it over 27.5 years. Appliances like stoves, refrigerators, and washers follow a five-year schedule.³ Getting the classification wrong cuts both ways: deducting an improvement immediately invites an adjustment, and capitalizing a true repair delays a deduction you were entitled to now.

Other Operating Costs

Insurance premiums for hazard, liability, and flood coverage are fully deductible, as are property management fees, HOA dues allocable to rental use, advertising, cleaning and maintenance between tenants, and supplies. Professional fees paid to attorneys, accountants, and property managers also qualify.

Mixed-Use Homes and Expense Allocation

Most second-home owners land in a middle zone: some personal use, some rental use in the same year. Personal use includes any day you, a family member, or anyone paying below-market rent occupies the home.⁴

If Personal Use Exceeds the Threshold

If personal use exceeds the greater of 14 days or 10% of rental days, the IRS treats the home as a residence rather than a rental. Rental deductions can’t exceed rental income, so the property can never produce a deductible tax loss.

Expenses come off in a set order. Mortgage interest and property taxes first, against rental income (the personal share is still deductible on Schedule A). Then operating costs like utilities, insurance, and maintenance. Depreciation last, and only to the extent any rental income remains. Anything the ordering rule leaves unused carries forward to future years under the same limits.⁴

If Personal Use Stays Below the Threshold

If personal use stays within the 14-day/10% limit, the home is a rental and can produce a deductible net loss (subject to the passive loss rules below). But every shared expense has to be split between rental and personal use.

The allocation formula for operating costs like utilities, insurance, and maintenance is rental days divided by total use days. Rent 100 days and use it personally 50 days, and 100 of 150 total use days (66.7%) of each shared expense is a rental deduction. The rest is personal and non-deductible. For mortgage interest and property taxes, the IRS prefers a different formula: rental days divided by 365. That shifts more of those costs to the personal side (deductible on Schedule A) and preserves more rental income to absorb other deductions.

Passive Activity Loss Limits

Even when a rental property produces a paper loss, you may not be able to use it right away. Rental real estate is automatically a passive activity, no matter how many hours you put in. Passive losses can only offset passive income, such as income from other rental properties. Without passive income to soak them up, the losses are suspended and carried forward until you either generate passive income or sell the property in full.⁷

The $25,000 Special Allowance

An exception lets many second-home owners use rental losses against ordinary income. If you actively participate in managing the rental (own at least 10% and make key decisions like approving tenants and authorizing repairs), you can deduct up to $25,000 of rental losses against wages or other non-passive income.⁷

The allowance phases out as income rises. Once AGI exceeds $100,000, it shrinks by 50 cents for every dollar above that mark. It disappears at $150,000. These thresholds are not indexed for inflation. At $120,000 AGI, for example, the allowance drops from $25,000 to $15,000: $20,000 of excess income times 50% is a $10,000 reduction.⁷

A separate exception for taxpayers who qualify as a real estate professional removes the passive classification entirely, but the bar is high: more than 750 hours a year in real property businesses where you materially participate, and more than half of all your professional working hours in real estate.⁷ For most owners with a full-time job outside real estate, this route isn’t realistic.

What Happens When You Sell

Selling a second home creates tax exposure that catches many owners off guard, especially those who claimed depreciation during rental years.

Unlike your primary residence, a second home does not qualify for the Section 121 exclusion that shields up to $250,000 of gain ($500,000 for joint filers). That exclusion requires you to have owned and used the property as your principal residence for at least two of the five years before the sale.⁸ If you never lived there as your primary residence, the entire gain is taxable at long-term capital gains rates, assuming you held it more than a year.

Some owners convert the second home to a primary residence before selling. Move in for at least two of the five years before the sale (they don’t have to be consecutive) and you can claim the exclusion. But gain allocable to non-qualified use (years after 2008 when the home wasn’t your primary residence) remains taxable even if you meet the two-year test.

If you claimed depreciation while renting the property, the IRS recaptures that benefit at sale. The portion of gain equal to the depreciation you claimed or were entitled to claim is taxed at a maximum 25% rate, higher than standard long-term capital gains rates. This is unrecaptured Section 1250 gain. You can owe recapture tax even if the property’s market value barely moved, because depreciation lowered your basis. On the other side of the ledger, any suspended passive losses become fully deductible in the year you sell the entire property, which can offset the gain.⁷

A Section 1031 like-kind exchange, which defers capital gains by rolling proceeds into another investment property, is not available for a purely personal second home. Both the property sold and the one acquired must be held for use in a trade or business or for investment.⁹ A second home with genuine rental history may qualify under a safe harbor (Rev. Proc. 2008-16) requiring rental at fair market value for at least 14 days in each of the two years before the exchange, with personal use kept within the 14-day/10% limit in each of those years, and the replacement property meeting the same test for two years after.

1
Office of the Law Revision Counsel. 26 USC 163 – Interest
2
Office of the Law Revision Counsel. 26 USC 164 – Taxes
3
Internal Revenue Service. Publication 527 – Residential Rental Property
4
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc.
5
Internal Revenue Service. The Standard Mileage Rates and Maximum Automobile Fair Market Values Have Been Updated for 2026
6
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
7
Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
8
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
9
Internal Revenue Service. Like-Kind Exchanges Under IRC Section 1031