Do you own two homes? If you do, there are some tax benefits you won’t want to miss out on. While a lot of the tax rules for your second home are the same as your first, there are also a few things that may be different—and this is where you can save. 

The rules may be different depending on whether you use your second home for personal use—a vacation home, for example—or as a rental property. Let’s dive in.

Did you rent your second home for 14 days or less?

If you only rented out your second home for 14 days or less, guess what? You don’t have to report that income to the IRS! Because that property is considered a personal residence, you can make big bucks and still never have to report it.

But there is a small downside as well: if you don’t report your income, you also can’t deduct expenses or claim any rental loss. 

Do you ever stay in your second home?

Even if you only stay in your second home infrequently, you may be able to get a tax break. The rule of thumb is that if you stay in the house for less than 14 days per year, or 10% of the number of days you rent it out for, it’s a rental property for tax purposes.

For instance, let’s say you rent your second home out for 100 days and stay there for fewer than 10 days. In that case, it would be considered a rental property. 

This is good news, because your taxes may be lower if you can count that home as a rental property rather than a personal residence. Yes, you will have to report any rental income on your taxes, but you’ll also be able to deduct rental expenses: things like mortgage interest, property taxes, property managers, utilities, depreciation, insurance, repairs, and improvements.

Is your MAGI under $100,000?

If you have a modified adjusted gross income (MAGI) under $100,000, you may be able to claim up to $25,000 in rental losses. To be eligible, you must “actively participate” in your rental property—which means spending a certain amount of time on your property each year. And if you forget to deduct your losses one year, you can carry them over to the next until they’ve all been used. This may not apply to real estate professionals, though.

Did you recently sell your primary residence?

When you sell a primary residence, you can deduct $250,000 of the capital gains (or $500,000 if married filing jointly). But what if you plan to sell a rental property? If you’re really set on getting that $250,000, you might want to make the rental property your primary residence—which means using it as your main home for two of the last five years before you sell it.

Need help navigating the tricky world of property taxes? Connect with one of our CPAs and get personalized help with all your taxes and property questions.