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Vacation Rental Tax Deductions: The Basics

Updated

Part of our series Let Others Pay for Your Vacation Home.

General information only, not tax advice. Vacation rental taxes have many special cases. Use this guide to know what questions to ask, then work with a CPA or enrolled agent. Sources are IRS Publication 527 (Residential Rental Property), Publication 925 (Passive Activity and At-Risk Rules) and Publication 946 (How To Depreciate Property).

Our rules and taxes guide covers the 14-day rule and when a vacation home counts as a residence. This guide goes one step further, into deductions.

Schedule E or Schedule C?

IRS Publication 527 says rental income and expenses are generally reported on Schedule E. Schedule C is generally used when you provide substantial services that are primarily for the tenant's convenience, such as regular cleaning, changing linen, or maid service (IRS Pub. 527). Pub. 527 says substantial services don't include basics like heat, light, trash collection or cleaning of public areas.

Why it matters: income on Schedule C may be subject to self-employment tax (IRS Pub. 527). Where a typical vacation rental falls (for example, cleaning only between stays) is a question for your tax pro; we did not find a bright-line IRS rule for STRs.

Common deductible expenses

Pub. 527 covers the usual rental expenses, which commonly include: mortgage interest, property tax, insurance, utilities, repairs, cleaning, supplies, platform and management fees, software, advertising, and travel for rental business (IRS Pub. 527). Keep receipts for everything; see the recordkeeping checklist in our rules guide.

Depreciation

Example (hypothetical, rounded): a building basis of $275,000 (land excluded) ÷ 27.5 years ≈ $10,000 a year, before first-year mid-month adjustments and any personal-use split.

Splitting expenses with personal use

If you use the home yourself, Pub. 527 says you must divide your expenses between rental and personal use (IRS Pub. 527). The split is generally based on days: days rented at fair rent compared with total days used. Days the home sits empty aren't counted as either. Chapter 5 of Pub. 527 has the worksheet, and limits deductions to rental income when the home counts as a residence (IRS Topic 415).

Example (hypothetical): 180 days rented, 20 personal days, 200 days used in total. About 90% of the shared expenses go to the rental. (Mortgage interest and property tax have their own allocation methods; ask your tax pro.)

Track days carefully. Our calendar guide has tips.

The 7-day average-stay rule

IRS Publication 925 says an activity isn't a "rental activity" under the passive-activity rules if the average period of customer use is 7 days or less. You figure the average by dividing total rental days by the number of rentals in the year (IRS Pub. 925).

Example (hypothetical): 189 nights across 54 stays = 3.5 nights average, so the 7-day exception may apply.

When it applies, losses aren't automatically "passive." Whether you can use them against other income then depends largely on material participation.

Material participation

Pub. 925 lists seven tests. Two that owners hear about most are (IRS Pub. 925): 1. You participated more than 500 hours in the year, or 2. You participated more than 100 hours, and at least as much as any other individual, including your cleaner or manager.

Using a full-service manager often makes these tests harder to meet. Keep a time log (date, task, hours).

Questions for your tax pro

☐ Schedule E or C for my setup? ☐ How do I split purchase price between land and building? ☐ Is my average stay 7 days or less, and do I materially participate? ☐ How do I allocate mortgage interest and property tax with personal use? ☐ Are there state-specific rules? ☐ What records should I keep?

Related guides

Checked October 19, 2026 against the current IRS publications. Tax law changes; confirm with a tax professional.