Personal-Use Days of a Vacation Home
Learn the IRS tax rules for personal-use days of a vacation home. If you own a second residence that you both rent out and use for personal reasons, this is important information to know.
Include days used by an owner, co-owner or family member of the owner/co-owner or under a reciprocal arrangement as personal-use days. DO NOT include:
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“Fix-up” days (repairing and maintaining but not making improvements);
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Use by a co-owner in a “SHARED-EQUITY FINANCING” arrangement where the taxpayer and occupant both have an ownership interest in the property., The owner-occupant must use the property as a principal residence and PAY FAIR RENTAL VALUE, considering ownership interest., This is a common arrangement where parents wish to help their children buy a home; or
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The use of the property by a FAMILY MEMBER, if the property is the family member’s principal residence and the family member pays fair rental value.
“ Example 1: Lotta Friends and her Neighbour, Troodie, co-own a condo at the beach. They rent the unit to vacationers whenever possible. Neither Lotta nor Troodie uses the condo as a principal home; however, Troodie always spends two weeks at the condo during August. Troodie’s use is considered personal use by both owners. ”
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“ Example 2: Assume that Lotta and Troodie own the condo under a shared equity agreement. Troodie lives in the condo as her main home and pays fair rental to Lotta for her portion. Under this arrangement, personal use by Troodie is not attributed to Lotta as well. Lotta claims the rental income and expenses on Schedule E in the usual manner. Passive rules apply. ”
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“ Example 3: Assume that Lotta owns the condo separately and rents it to Troodie. Troodie owns a home in the mountains, which she rents to Lotta. On the days Lotta rents the condo to Troodie, she is considered to be using it personally. Reason: She has a reciprocal arrangement with Troodie to rent the mountain cabin. ”
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