Counting the days
The test is the greater of 14 days or 10 percent of the days rented at a fair rental price. If a property was rented 160 days at fair rental, 10 percent is 16 days, so 16 is the threshold — use it personally for 17 days and it is a home. If it was rented 27 days, 10 percent is under 14, so the 14-day figure governs.
One counting rule catches people. If you use the unit personally on a day it is also rented at fair rental price, that day does not count as a rental day — it counts as a personal day for both parts of the test.
A day is personal use if the unit is used by you or anyone else who owns an interest in it; by a member of your family or of a co-owner's family; by anyone under an arrangement that lets you use another dwelling; or by anyone paying less than fair rental price. Family here means spouse, siblings and half-siblings, ancestors and lineal descendants.
There are exceptions inside those categories. A family member's use is not personal use to you if they use the unit as their main home and pay fair rental price. A co-owner's use under a shared equity financing agreement — where co-owners hold undivided interests for more than 50 years and one occupies as a main home paying rent to the others — is likewise not counted against you.
Donating use to a charity does not help. If you donate the use of the unit, the organization auctions it at a fundraiser, and the purchaser uses it, that is personal use by you.
- Threshold: greater of 14 days or 10% of fair-rental days
- A day that is both personal and rented counts as personal, not rented
- Use by co-owners, family, swap arrangements or below-market renters is personal use
- Exceptions: family main home at fair rent; shared equity financing agreements
- Charitable donation of use still counts as your personal use
Days that do not count
Spend a day working substantially full time on repairs and upkeep — not improvements — and it does not count against you as personal use. That holds even when family members are there enjoying themselves the same day.
The IRS example makes the point about intent. An owner spends a week at a mountain cabin with family, working three or four hours a day on maintenance and fishing and hiking the rest, while the family works substantially full time on the cabin each day. Because the main purpose of the week is maintenance work, the week is not personal use by the owner.
Time you spent living there as your main home, either side of the rental period, may also drop out of the count for the home test. That applies if you rented or tried to rent it for 12 or more consecutive months, or for a shorter period that ended because you sold or exchanged the property. Note the limit: this special rule does not apply when you are dividing expenses between rental and personal use.
So an owner who moves out in February, rents the house at fair rental from March through the following May, and moves back in June does not count the months of personal residence at either end as personal use days for the home test.
The under-15-days rule
If you use the dwelling as a home and rent it fewer than 15 days during the year, that rental period is not treated as a rental activity at all. You do not report the rent as income and you do not deduct the rental expenses.
This is why short-term platform rentals attract attention. Rent all or part of your dwelling for 14 days or fewer and the income is generally not subject to federal income tax, regardless of amount. State or local taxes may still apply.
Rent it for more than 14 days and all the rental income becomes taxable. The platform may issue a Form 1099-K if payments exceed the reporting threshold, independent of how many days you rented.
In that case the ordinary expenses — mortgage interest, property taxes, qualified casualty losses — are reported on Schedule A in the normal way rather than on Schedule E, since the property's primary function is not rental.
What changes once it is a home
Renting a dwelling that is considered a home is not a passive activity. If rental expenses exceed rental income, some or all of the excess cannot be used to offset income from other sources.
The excess carries forward to the next year and is treated as rental expenses for the same property, subject to whatever limits apply in that year. Critically, the carryforward stays subject to this limitation even in a later year when you no longer use the property as a home.
How you report depends on which of three situations you are in. If you use the unit for personal purposes but not as a home, report all rental income, divide expenses between rental and personal use, and deduct only the rental portion — deductible expenses can exceed gross rental income, though limits may apply. If you use it as a home and rent it fewer than 15 days, report nothing. If you use it as a home and rent it 15 days or more, report all rental income and divide expenses, with the personal portion not deductible as a rental expense.
In that third case, whether you need the IRS worksheet depends on the result. A net profit — rental income exceeding total rental expenses including depreciation — means you deduct all your rental expenses and skip the worksheet. A net loss means your deduction for certain rental expenses is limited, and Worksheet 5-1 in Publication 527 computes the deductible amount and the carryover.