The tax deductions you can claim on a second home come down to how the IRS classifies the property for the year. If you never rent it out, or rent it for fewer than 15 days, you get the same two write-offs available on your primary residence: mortgage interest and property taxes. If you rent it out regularly and keep your own use minimal, the property is treated as a rental business and nearly every cost of running it becomes deductible, including depreciation. If your use falls somewhere in between, you’re in mixed-use territory, where every expense gets split between a deductible rental portion and a nondeductible personal portion, with a hard cap on how much you can write off.
The category isn’t a choice. It’s set by your actual usage each year, and the same beach house can shift from one category to another between tax years. So the starting point is figuring out which bucket you’re in.
How the IRS Classifies Your Second Home
Three categories come out of Section 280A of the Internal Revenue Code, and the IRS walks through them in Topic 415 and Publication 527.
Personal-use property. If you rent the home for fewer than 15 days during the year, the IRS ignores the rental activity entirely. You don’t report the income, and you can’t deduct any rental expenses. A property also lands here if your personal use exceeds the greater of 14 days or 10 percent of the days it was rented at a fair price, no matter how many rental days you logged. A cabin rented for 200 days where you spent 25 days yourself is still personal-use, because 25 is more than 20 (10 percent of 200).
Full-time rental. If your personal use stays at or below 14 days (or 10 percent of total rental days, whichever is greater), the property is a rental business. Every ordinary cost of running it is deductible on Schedule E.
Mixed-use. If you rent the home for 15 or more days and your personal use crosses that 14-day or 10-percent line, you’re in the most complicated category. You report the rental income, every expense gets prorated, and the rental deductions can’t exceed the rental income.
What Counts as a Personal-Use Day
The classification turns on the personal-use day count, and the IRS defines “personal use” more broadly than most owners expect. Any day you, a family member, or a co-owner’s family member uses the property counts. There’s one narrow exception: a family member’s stay doesn’t count if they use the home as their primary residence, hold no ownership interest, and pay fair market rent.
Renting to anyone at below-market rates also triggers a personal-use day, even a stranger. If you donate a week at your vacation home to a charity auction, the winning bidder’s stay counts as personal use for the 14-day threshold.
Days you spend on repairs and maintenance don’t count, but the IRS expects you to be working substantially the entire day. Swapping a lightbulb in the morning and spending the afternoon on the dock won’t pass.
Deductions If You Don’t Rent It Out
Personal-use second homes get two deductions, both on Schedule A. If you take the standard deduction instead of itemizing, neither one produces any tax benefit.
Mortgage Interest
Interest on the mortgage is deductible as qualified residence interest, but the total acquisition debt across your primary home and second home combined can’t exceed $750,000 if the mortgage was taken out after December 15, 2017. Mortgages originating on or before that date follow the older $1 million limit. Interest on debt above the applicable cap isn’t deductible. The $750,000 figure applies to married couples filing jointly; married taxpayers filing separately are limited to $375,000 each.
Property Taxes and the SALT Cap
Property taxes on the second home are deductible as part of the state and local tax (SALT) deduction on Schedule A. For 2026, the SALT cap is approximately $40,400 for most filers, up from $40,000 in 2025 under a 1-percent annual increase enacted by the One Big Beautiful Bill. Married couples filing separately face roughly half that limit. The cap covers all state and local taxes combined: income or sales taxes plus property taxes on every property you own. If your modified adjusted gross income exceeds roughly $505,000, the cap begins to phase down but won’t drop below $10,000.
The SALT cap is the biggest practical constraint for owners in high-tax states. If your state income taxes and primary-home property taxes already eat up most of the cap, the second home’s property taxes may add little or nothing.
What You Cannot Deduct
Utilities, insurance, maintenance, repairs, HOA dues, and similar operating costs are not deductible on a personal-use second home. The IRS treats them as personal living expenses, no different from mowing the lawn at your primary residence.
Deductions If You Rent It Out Regularly
A second home that qualifies as a full-time rental gets the widest set of write-offs, all against the rental income on Schedule E. This is where the math starts working in your favor.
Operating Expenses
Fully deductible costs include insurance premiums, utilities, property management fees, advertising for tenants, lawn care, pest control, and travel to the property for maintenance or tenant-related tasks. Mortgage interest and property taxes are also deducted on Schedule E as business expenses, which means they bypass the SALT cap and the $750,000 mortgage limit that apply to personal-use homes on Schedule A.
Repairs Versus Improvements
A repair that keeps the property in working condition, like fixing a broken water heater or patching a roof leak, is deductible in the year you pay for it. An improvement that adds value or extends the property’s life, like a kitchen renovation or a new roof, has to be capitalized and depreciated over time. The IRS looks closely at this line, and misclassifying an improvement as a repair is one of the fastest ways to draw audit attention on a rental return.
A de minimis safe harbor lets you expense items costing $2,500 or less per invoice (or $5,000 if you have audited financial statements) without capitalizing them. You elect this safe harbor annually on your return. Appliances, window units, and similar items often fall under this threshold.
Depreciation
Depreciation is often the largest single deduction on a rental property, because it reduces taxable income without any cash outlay that year. Residential rental property is depreciated using the straight-line method over 27.5 years. You calculate the annual amount by subtracting the land value from your total cost basis and dividing by 27.5.
If you bought a rental for $400,000 and the land accounts for $80,000, your depreciable basis is $320,000. That produces roughly $11,636 per year in depreciation deductions. You report it on Form 4562, and the result flows to Schedule E.
Depreciation that reduces your taxable income now gets recaptured when you sell, which is covered further down.
Qualified Business Income Deduction
Rental properties that meet the definition of a trade or business may qualify for the Section 199A qualified business income (QBI) deduction, worth up to 20 percent of net rental income. The deduction was extended through 2029 and remains available for 2026 returns.
The IRS provides a safe harbor: if you perform at least 250 hours of rental services per year and keep contemporaneous logs, the property is automatically treated as a qualifying business. Qualifying activities include advertising, tenant screening, lease negotiation, rent collection, repairs, and supervision of contractors. For properties owned less than four years, you need 250 hours every year; for older holdings, 250 hours in at least three of the last five years.
The QBI deduction begins to phase out for single filers with 2026 taxable income above roughly $201,750 and joint filers above roughly $403,500. Below those thresholds, the full 20 percent is available.
Deductions on a Mixed-Use Vacation Rental
Mixed-use properties require you to split every expense between a deductible rental portion and a nondeductible personal portion. The math itself isn’t hard, but the IRS applies the deductions in a strict order that can limit what you actually get to write off.
The Basic Allocation Formula
For most operating expenses, the rental percentage equals rental days divided by total days the property was actually used (rental days plus personal-use days). If you rented for 90 days and used it personally for 30 days, total use is 120 days and the rental percentage is 75 percent. Apply that percentage to utilities, insurance, repairs, and depreciation to get the deductible share.
The Bolton Method for Interest and Taxes
Mortgage interest and property taxes are treated differently. In Bolton v. Commissioner, the Tax Court held that because interest and taxes accrue daily regardless of whether anyone occupies the property, they should be allocated using the full 365 days in the year as the denominator, not just days of actual use. Under this method, 90 rental days out of 365 gives you a rental share of about 24.7 percent, rather than 75 percent under the standard formula.
Shifting a smaller share of interest and taxes to the rental side leaves a larger personal-use portion, which you can still deduct on Schedule A (subject to the mortgage and SALT limits). The IRS has acquiesced to this approach, and Publication 527 structures its allocation worksheet to accommodate it. The statutory basis is Section 280A(e)(2), which carves out expenses that would be deductible regardless of rental use.
The Ordering Rules That Cap Your Deductions
Section 280A(c)(5) prohibits rental deductions on a mixed-use property from exceeding gross rental income. In practice, your rental expenses can reduce rental income to zero, but they can never generate a rental loss. The IRS enforces this through a three-tier ordering system in Publication 527’s Worksheet 5-1:
- Tier 1 is the rental portion of mortgage interest, property taxes, and casualty losses. These come off the top of your rental income first.
- Tier 2 is the rental portion of operating expenses like utilities, insurance, and repairs. Deductible only to the extent rental income remains after Tier 1.
- Tier 3 is the rental portion of depreciation. Deductible only if rental income still remains after Tiers 1 and 2.
If rental income isn’t enough to absorb all three tiers, the excess carries forward to next year’s return, where it faces the same ordering rules again. The Bolton method helps here by pushing less interest and tax onto the rental side, leaving more room for Tier 2 and Tier 3 deductions to fit under the cap.
Short-Term Rentals With Substantial Services
If you rent your second home on Airbnb, Vrbo, or a similar platform and provide substantial services to guests, the IRS may treat the income as business income on Schedule C rather than passive rental income on Schedule E. “Substantial services” means things like regular cleaning between guests, fresh linens, concierge-type assistance, or daily maid service. A property where you hand over the keys and leave the guest alone generally stays on Schedule E.
The distinction matters. Schedule C income is subject to self-employment tax (15.3 percent on net earnings up to the Social Security wage base and 2.9 percent above that), which Schedule E rental income avoids. On the other side, Schedule C income isn’t subject to the passive activity loss limits below, so losses can offset your other income more freely.
For 2026, short-term rental platforms are required to issue you a Form 1099-K only if your gross payments exceed $20,000 and you have more than 200 transactions during the year. That threshold was reinstated by the One Big Beautiful Bill, reverting to pre-2022 levels. Whether or not you receive a 1099-K, all rental income is taxable and must be reported.
Loss Limits That Can Delay Your Deductions
Even when your full-time rental property generates a legitimate tax loss after all expenses and depreciation, the passive activity loss (PAL) rules may prevent you from using that loss against wages, business income, or investment gains this year. Rental activity is passive by default.
If you actively participate in managing the property, you can deduct up to $25,000 in rental losses against non-passive income each year. Active participation means real management decisions: approving tenants, setting rental terms, authorizing repairs, hiring contractors. You don’t need to do the day-to-day work, but you do need genuine involvement beyond signing checks. The allowance phases out once your modified AGI exceeds $100,000, shrinking by $1 for every $2 above that threshold, and disappears entirely at $150,000.
Losses blocked by the PAL rules aren’t lost. They’re suspended and carried forward indefinitely, available to offset passive income in future years. When you eventually sell the property in a fully taxable transaction, all accumulated suspended losses become deductible at once against any type of income.
What Happens When You Sell
Selling a second home triggers capital gains tax on the profit, and the rules shift depending on how you used the property.
Long-Term Capital Gains Rates
If you held the property for more than a year, the gain is taxed at long-term capital gains rates. For 2026, single filers pay 0 percent on gains up to $49,450 of taxable income, 15 percent between $49,451 and $545,500, and 20 percent above that. Joint filers hit the 15-percent bracket at $98,901 and the 20-percent bracket at $613,701. Properties held one year or less are taxed as ordinary income.
Depreciation Recapture
If you claimed depreciation while the property was a rental, the IRS recaptures that benefit at sale. The portion of your gain attributable to depreciation you took (or should have taken) is taxed at a maximum rate of 25 percent, regardless of your income bracket. This “unrecaptured Section 1250 gain” is calculated before the remaining gain is taxed at the regular capital gains rates.
If you claimed $80,000 in total depreciation over the years and sold for a $200,000 gain, the first $80,000 would be taxed at up to 25 percent, and the remaining $120,000 at your applicable long-term rate. Recapture is mandatory even if you never actually claimed the deduction. The IRS recaptures the amount you were entitled to, not just the amount you used.
The Primary-Residence Exclusion Doesn’t Apply Automatically
The Section 121 exclusion that shelters up to $250,000 in gain for single filers and $500,000 for married joint filers is a primary-residence rule, not a second-home rule. It only comes into play if you move into the second home and use it as your principal residence for at least two of the five years before selling. Even then, gain attributable to periods of “nonqualified use” after 2008 (time when the home was not your primary residence) is excluded from the exclusion. If you rented the home for six years and lived in it for two, roughly six-eighths of the gain would remain taxable.
Records You Need to Keep
Every deduction described above depends on documentation you can produce if the IRS asks. Keep a usage log showing each day the property was rented, each day you or a family member used it personally, and each day it sat vacant. Note the rental rate charged and whether the tenant was a related party. For the QBI safe harbor, keep contemporaneous time logs of every rental service activity: date, hours, and description of work.
Save receipts for all expenses, and keep records that distinguish repairs (immediately deductible) from improvements (capitalized and depreciated). Photographs of the property’s condition before and after work help support your classification if it’s ever questioned. If you use the Bolton allocation for interest and taxes, document the calculation so it’s easy to reconstruct years later.
Most IRS audits of rental properties focus on three things: whether the personal-use day count is accurate, whether repairs were really repairs, and whether the expense allocation percentages are defensible. Solid records resolve all three.