If you rent your principal residence to others for fewer than 15 days per year, any rental income you derive is not considered taxable income. However, if you rent your principal residence for fewer than 15 days per year, or if you do not rent your home at all, the only home-related expenses you may deduct are the following:
- Interest on loan(s) secured by the residence (i.e., mortgage interest), subject to certain limitations
- Property taxes
- Casualty losses
Maybe the home you’re renting is a second home or vacation residence. If you rent a second residence for fewer than 15 days per year, that home will be considered a second home for tax purposes. As was the case with your principal residence, any rental income you receive will be exempt from federal income tax. Also, you may not deduct expenses related to the renting of the property. However, you will be allowed to deduct casualty losses, mortgage interest, and property taxes you pay on the home during the year, subject to the normal limitations on mortgage interest deductions on primary and second homes.
If you rent a second residence for 15 days or more per year, and your personal use of the property exceeds the greater of 14 days per year or 10 percent of the days rented, your residence will be considered a vacation home for tax purposes. All rental income you receive will be reportable. Along with the usual deductions for casualty losses, property taxes, and mortgage interest, you may be able to deduct expenses for insurance, repairs, utilities, and depreciation (under certain conditions).
Different tax rules will apply if your property is considered to be strictly rental property.