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IRC § 280A Vacation Home Expense Allocation: Step-by-Step Guide

By RE Tax Calc Editorial · Published November 1, 2026

When you rent a vacation home you also use personally, § 280A dictates which expenses you can deduct — and in what order.

Illustration for IRC § 280A Vacation Home Expense Allocation
Quick Answer Under IRC § 280A, a vacation home used personally for more than 14 days (or 10% of rental days, whichever is greater) is classified as a "residence," capping rental deductions at gross rental income. Expenses are deducted in a strict three-step order: mortgage interest and property taxes first, then operating costs, then depreciation — and any excess carries forward.
IRS Rule IRC § 280A(d)(1) defines the personal use threshold: if you personally use the dwelling unit for more than the greater of 14 days or 10% of the days it was rented at fair rental price, all rental deductions are limited to gross rental income from that unit. The "residence" classification also changes how you allocate expenses between rental and personal use on Schedule E and Schedule A.

A worked example before the rules

Concrete numbers first. Suppose you own a mountain cabin you purchased three years ago:

Does § 280A apply? Personal use threshold = greater of 14 days or 10% × 60 rental days = 6 days. So threshold = 14 days. Your 40 personal-use days far exceed 14 days — the cabin is a residence and deductions are capped at $12,000.

Annual expenses:

ExpenseAnnual Total
Mortgage interest$14,000
Property taxes$3,500
Hazard insurance$2,000
HOA fees$1,800
Utilities$2,400
Maintenance/repairs$1,500
Depreciation$10,909
Total$36,109

Total expenses of $36,109 dwarf gross income of $12,000. The ordering rule determines how much gets used.

Step 1 — Mortgage interest and property taxes (IRS allocation method)

The IRS allocates mortgage interest and property taxes to rental use using the fraction: rental days ÷ 365. This is the IRS position from Revenue Ruling 86-149. The denominator is 365 regardless of how many days the unit was actually used during the year.

Rental fraction (Step 1): 60 ÷ 365 = 16.44%

The remaining personal-use portions stay on Schedule A: $11,698 mortgage interest and $2,925 property taxes (subject to the SALT cap).

Gross income remaining after Step 1: $12,000 − $2,877 = $9,123

Planning Tip Under the IRS method, using 365 as the denominator for interest and taxes keeps more of those deductions on Schedule A (itemized). If you itemize and your Schedule A deductions are already limited by the SALT cap or AMT, you may actually prefer the Tax Court's Bolton method, which allocates more interest to rental. There's no "free" choice — you should model both and pick the method supported by your facts and a solid professional opinion.

Step 2 — Operating expenses

For operating expenses (insurance, HOA, utilities, repairs, and similar items), both the IRS and the Tax Court use the fraction: rental days ÷ total days of actual use.

Rental fraction (Step 2): 60 ÷ 100 = 60%

But deductions in Step 2 are limited to remaining gross income: $9,123. Since $4,620 < $9,123, the full $4,620 is deductible.

Gross income remaining after Step 2: $9,123 − $4,620 = $4,503

Common Mistake Taxpayers often forget that the Step 2 limitation is cumulative — it is the income remaining after Step 1 deductions, not the original gross income. Using the full $12,000 as the ceiling for operating expenses overstates deductible operating costs and underreports taxable income.

Step 3 — Depreciation

Depreciation is allocated using the same fraction as Step 2 — rental days ÷ total days of use — but is deducted last and only to the extent income remains after Steps 1 and 2.

Allocated depreciation: $10,909 × 60% = $6,545

But the income remaining is only $4,503.

Schedule E result:

The Tax Court allocation method (Bolton v. Commissioner)

The Tax Court, in Bolton v. Commissioner (694 F.2d 556, 9th Cir. 1982), rejected the IRS's 365-day denominator for mortgage interest and property taxes. The court held that all expenses — including interest and taxes — should use rental days ÷ total days of use.

Applying the Bolton method to the same example:

Remaining income after Step 1: $12,000 − $10,500 = $1,500

Step 2 allocated operating expenses are the same $4,620 in absolute terms, but now the cap is only $1,500:

Under Bolton, Schedule A gets: mortgage interest $14,000 × 40% = $5,600; property taxes $3,500 × 40% = $1,400 — far less than the IRS method's $11,698 and $2,925.

The net Schedule E income is still $0 under both methods (deductions always equal income when you hit the cap), but the composition of carry-forwards and Schedule A deductions differs materially.

IRS Rule The IRS formally follows its own 365-day method and will challenge Bolton on audit. However, the 9th Circuit's Bolton decision is binding in that circuit, and several other courts have agreed. Which method applies to you depends on your circuit. Work with a tax professional to determine which position is defensible for your situation.

What goes on Schedule E and Schedule A

After calculating the allocations, you report on two forms:

Schedule E, Part I — Report gross rental income and your allowed rental deductions (the amounts computed above). The key lines are: rents received, mortgage interest (rental portion), taxes (rental portion), and all other operating expenses. Depreciation flows through from Form 4562, Part III. The net result cannot be negative — it floors at zero.

Schedule A — Report the personal-use portion of mortgage interest on Line 8a (if within the acquisition debt limits under § 163(h)) and property taxes on Line 5b (subject to the $10,000 SALT cap). The personal-use portions are not limited by the rental income cap.

Keep a year-by-year worksheet tracking your carryforward amounts. The IRS does not maintain a running tally for you. If you sell the property, disallowed carryforwards become deductible in the year of sale, subject to the passive activity rules.

The 14-day / no-personal-use alternative

If you keep personal use at or below the § 280A threshold, the property is treated as a pure rental — not a residence. In that case:

For many investors, staying below the personal use threshold is the more tax-efficient choice — particularly for investors in higher income brackets who cannot use the passive loss.

Carryforward tracking and the year of sale

Under § 280A(c)(5), disallowed expenses carry forward as a deduction in subsequent years, subject to the same income cap in each future year. They are allocated by category: first the prior-year Step 1 carryforward, then Step 2 carryforward, then Step 3 (depreciation) carryforward — following the same ordering rule each year.

When you sell the property, all remaining carryforwards from § 280A become fully deductible in the year of sale (they are released). At the same time, any depreciation you actually deducted — including the depreciation portions allowed through the Step 3 process — is subject to Section 1250 unrecaptured depreciation taxed at a maximum federal rate of 25%.

Track your adjusted basis carefully: subtract all depreciation actually allowed (or allowable), including the limited Step 3 amounts you deducted, not the full allocated amount before the income cap.

Planning Tip A simple spreadsheet updated each year prevents basis errors that are expensive to unwind at sale. Track columns for: year, gross rental income, Step 1 deducted, Step 2 deducted, Step 3 (depreciation) deducted, and Step 3 carryforward. The cumulative Step 3 column is your actual depreciation taken — it reduces your adjusted basis and creates unrecaptured § 1250 gain at sale.

Frequently asked questions

What is the personal use threshold under IRC § 280A?

Your vacation home becomes a residence under § 280A if you personally use it for more than 14 days OR more than 10% of the days it is rented at fair rental price — whichever is greater. If you rent for 100 days, the threshold is max(14, 10) = 14 days. If you rent for 200 days, the threshold is max(14, 20) = 20 days.

Can I deduct a net loss from a residence vacation rental?

No. Under § 280A, if your property qualifies as a residence, your rental deductions cannot exceed your gross rental income for that year. Any disallowed excess carries forward to future years and can be deducted then, subject to the same income cap each year. The carry-forward releases entirely in the year you sell.

What is the difference between the IRS and Tax Court allocation methods?

The IRS (following its own administrative position) uses rental days divided by 365 to allocate mortgage interest and property taxes to rental use, leaving more on Schedule A as a personal deduction. The Tax Court, in Bolton v. Commissioner, uses rental days divided by total days of actual use for all expenses including interest and taxes. The Tax Court method allocates more to rental, reducing the Schedule A deduction.

Does § 280A apply if I rent for fewer than 15 days?

No. Under § 280A(g), if you rent the home for fewer than 15 days during the year, the rental income is excluded from gross income entirely — it is tax-free. The flip side: you cannot deduct any rental expenses. Mortgage interest and property taxes remain deductible on Schedule A as a second home.

What happens to disallowed expenses under § 280A?

Disallowed deductions carry forward indefinitely under § 280A(c)(5). They become deductible in a future year when gross rental income exceeds the prior-step expenses, giving the carry-forward room to absorb. When you sell, all remaining carryforwards are released in the year of sale.

Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.

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