Real Estate Tax Calc
The residence threshold: the 14-day / 10% test
Whether the §280A loss cap applies hinges on a single classification question: is the property a residence for the year? The IRS answers that with a two-part test.
A dwelling unit is a §280A residence if personal use days exceed the greater of:
- 14 days, or
- 10% of the fair rental days for the year.
If personal use stays at or below that threshold, the property is not a residence. Losses are limited only by the passive-activity rules of §469 — not by §280A — and carry forward if unused. If personal use exceeds that threshold, the property is a residence and the §280A cap applies for the entire year.
Examples of how the threshold works:
- 80 fair rental days, 10 personal days: 10% of 80 = 8. Greater of 14 and 8 is 14. 10 days < 14 → not a residence.
- 80 fair rental days, 20 personal days: 10% of 80 = 8. Greater of 14 and 8 is 14. 20 days > 14 → residence.
- 200 fair rental days, 25 personal days: 10% of 200 = 20. Greater of 14 and 20 is 20. 25 days > 20 → residence.
- 200 fair rental days, 18 personal days: 10% of 200 = 20. Greater of 14 and 20 is 20. 18 days < 20 → not a residence.
Counting personal use days correctly is the upstream step — this guide assumes you have that number. For a full explanation of what counts as a personal use day (family member rentals, below-market use, repair days, and more), see the companion guide on fair rental days on Schedule E.
The deduction cap: no net rental loss allowed
Once the property is classified as a residence, §280A(c)(5) caps rental deductions at the gross rental income attributable to the rental period. The cap is not a dollar limit — it is a prohibition on a net loss. You can deduct rental expenses up to the amount that reduces your net rental income to zero, but no further.
What counts as "gross rental income" for this purpose is the rent you actually received for fair rental days — not a pro-rated share of the full year's potential rent, and not including any personal use days' imputed value. Vacant days count as neither rental nor personal and are excluded from the gross income calculation.
The deduction cap applies to the rental share of expenses, not to the full expense amount. You first allocate each expense between rental and personal use using the IRS method (described below), and then apply the cap to the rental-share total.
Allocating expenses: the IRS method required for residences
When a property is a residence, the IRS mandates a specific allocation method for dividing shared expenses between rental and personal use:
Rental share = rental days ÷ (rental days + personal use days)
This is known as the IRS method. It differs from the Tax Court method (rental days ÷ 365), which gives a smaller rental fraction and is favored for non-residence properties. For a residence property, the IRS method is required — the Tax Court method is not available, and using it would be an error on your return.
Under the IRS method, the denominator is only the days actually used (rental + personal), not the full 365 days. Vacant days are excluded from both the numerator and denominator. This means the rental share is higher under the IRS method: a property rented 60 days with 20 personal days has a 75% rental share (60 ÷ 80) under the IRS method, versus only 16.4% (60 ÷ 365) under the Tax Court method.
The apparent paradox — the IRS method gives the larger deduction fraction for vacation homes — is resolved at the loss limitation step. The larger fraction produces a larger rental expense allocation, but that larger allocation hits the gross-income cap and the excess is lost. The IRS method benefits the government overall by pushing more of the interest and taxes into the rental bucket (where they are limited by the cap) and leaving less for the personal Schedule A deduction.
The three-tier deduction order
When applying the §280A cap, deductions must be taken in a mandatory order. The three tiers are:
Tier 1 — Mortgage interest and property taxes (rental share). These are deducted first, against gross rental income. The personal share of mortgage interest goes to Schedule A as qualified residence interest (subject to the TCJA $750,000 limit), and the personal share of property taxes goes to Schedule A as state and local taxes (subject to the $10,000 SALT cap). The rental share reduces gross rental income first.
Tier 2 — Operating expenses (rental share). Insurance, utilities, repairs, property management fees, and similar operating costs come next. These are deductible only to the extent that gross rental income exceeds the Tier 1 amounts. If Tier 1 deductions already equal or exceed rental income, Tier 2 expenses are disallowed entirely for the year — and unlike passive losses, they are not carried forward.
Tier 3 — Depreciation (rental share). Depreciation is deducted last, only against whatever rental income remains after Tier 1 and Tier 2. Because depreciation is the residual, it is the most likely expense to be partially or entirely suspended by the §280A cap. Any suspended rental-share depreciation is not deductible in any year — but the undepreciated basis is preserved and reduces your gain when you eventually sell.
The ordering rule means that in a high-mortgage, low-income vacation rental, mortgage interest and taxes can consume all rental income in Tier 1, leaving zero room for insurance, utilities, and depreciation — all of which are disallowed.
What "suspended" really means: no carryforward
The §280A cap creates a permanent disallowance, not a deferral. This is the single most important practical distinction from other rental loss limitations:
- Passive activity losses (§469): suspended losses carry forward indefinitely and are released when the property is sold or the taxpayer has passive income to offset them.
- At-risk losses (§465): losses suspended when at-risk amount is reduced are released when the taxpayer's at-risk amount increases.
- §280A disallowed losses: gone. No carryforward. No future release. The only partial recovery is that undepreciated basis remains in the property and eventually reduces the gain on sale — but the year's suspended loss itself is not deductible in any subsequent year.
This permanent-disallowance character is why the distinction between residence and non-residence classification is so consequential. A property just barely over the threshold (say, 15 personal days vs. 14) loses its entire excess rental deduction permanently, while a property just below (14 personal days) can carry those losses forward.
One nuance: if the property is classified as a residence and passes the §280A test, the §469 passive rules do still apply — but only to the rental income and deductions that survive the §280A cap (which net to zero). There is no passive loss to carry forward from a §280A residence because the floor is zero net income, not a negative number.
Deductions available regardless: Schedule A items
Even when the §280A cap disallows your rental-share deductions, the personal share of mortgage interest and property taxes remains potentially deductible on Schedule A, subject to their own limits:
- Personal-share mortgage interest deductible as qualified residence interest, up to the TCJA $750,000 acquisition debt limit (or $1 million for loans pre-December 15, 2017).
- Personal-share property taxes deductible as state and local taxes, subject to the $10,000 combined SALT cap.
Under the IRS allocation method, the personal share of mortgage interest is a smaller fraction (since the rental share is larger). For a property used 60 rental days and 20 personal days (75% rental), only 25% of mortgage interest goes to Schedule A. This is frequently less favorable than the Tax Court method (which would put 83.6% of mortgage interest on Schedule A), but it is not negotiable for a §280A residence.
Worked example: the §280A cap in action
An investor owns a beach house. In 2026: 60 fair rental days, 20 personal use days, 285 vacant days. Gross rental income: $18,000.
Step 1 — Residence test. 10% of 60 fair rental days = 6. Greater of 14 and 6 is 14. Personal use (20 days) exceeds 14 → property is a §280A residence.
Step 2 — Rental share (IRS method). 60 ÷ (60 + 20) = 75%.
Annual expenses:
- Mortgage interest: $12,000 → rental share $9,000; personal share $3,000
- Property taxes: $3,600 → rental share $2,700; personal share $900
- Insurance: $2,400 → rental share $1,800
- Utilities: $1,800 → rental share $1,350
- Depreciation: $6,000 → rental share $4,500
Tier 1 — Deduct interest and taxes against rental income:
$18,000 rental income − $9,000 interest − $2,700 taxes = $6,300 remaining
Tier 2 — Deduct operating expenses:
$6,300 − $1,800 insurance − $1,350 utilities = $3,150 remaining
Tier 3 — Deduct depreciation (up to remaining income):
Rental-share depreciation available: $4,500. Remaining rental income: $3,150. Depreciation deducted: $3,150. Depreciation suspended: $4,500 − $3,150 = $1,350 (permanently lost).
Schedule E result: Gross income $18,000, total deductions $18,000, net rental income $0. No loss. The $1,350 suspended depreciation is not carried to 2027.
Schedule A: Personal share of mortgage interest ($3,000) is deductible as qualified residence interest, subject to debt limits. Personal share of property taxes ($900) is deductible as SALT, subject to the $10,000 cap.
Now compare the same property with 14 personal days instead of 20: 10% of 60 = 6; greater of 14 and 6 is 14; 14 days does NOT exceed 14 → not a residence. All rental-share expenses are fully deductible. Rental net loss = $18,000 − $9,000 − $2,700 − $1,800 − $1,350 − $4,500 = −$1,350. That $1,350 passive loss carries forward under §469, available in future years. The difference of just 6 personal days converts a recoverable carryforward loss into a permanent disallowance.
How to escape or reduce the §280A cap
Three planning strategies alter the classification:
1. Reduce personal use days below the threshold. The most direct solution. If you can limit personal use to 14 days or fewer (or to 10% or fewer of your rental days), the property avoids residence classification entirely. Even one fewer personal day can flip the outcome, as the beach house example above illustrates. Maintenance and repair days do not count as personal use days — only recreational use does — so scheduling your property visits as working trips to perform repairs, documented contemporaneously, is a legitimate way to minimize the count.
2. Increase rental days. More rental days raises the 10%-of-rental-days threshold, which may allow more personal use days without triggering residence status. If you increase rental days from 60 to 200, the threshold rises from 14 to 20, giving you room for more personal visits without crossing into §280A territory. The flip side is that more rental income and activity means more Schedule E complexity.
3. Convert to a pure rental or a pure second home. A property with zero personal use is a full rental — §280A never applies, all expenses are deductible subject to passive-activity rules, and losses carry forward. A property with zero rental days but significant personal use is simply a second home, deductible only for mortgage interest and property taxes on Schedule A. Neither extreme triggers §280A. The problematic middle ground is mixed use that pushes personal days above the threshold.
Frequently asked questions
What is the §280A residence test for vacation rentals?
A property is a §280A residence if personal use days exceed the greater of 14 days or 10% of fair rental days. Once classified as a residence, rental deductions cannot exceed gross rental income — no net loss is allowed, and excess deductions are permanently suspended for that year.
Are §280A suspended rental losses carried forward?
No. Unlike passive activity losses under §469, deductions that exceed rental income under §280A are permanently lost — they cannot be carried to a future year. The only partial recovery is that unused depreciation reduces your adjusted basis in the property, which decreases the taxable gain when you eventually sell.
What if my vacation home has zero personal use days?
With no personal use, the §280A residence test is never triggered, and the property is treated as a full rental. All rental-share expenses are deductible against rental income, and any net loss carries forward as a passive activity loss under §469, subject to the $25,000 allowance and MAGI phase-out rules.
Can I deduct depreciation on a §280A residence property?
Yes, but only up to whatever rental income remains after deducting the rental share of mortgage interest, property taxes, and operating expenses in that order. Depreciation is the last tier deducted, and any rental-share depreciation that exceeds remaining income is permanently suspended — not carried forward to any future year.
How does §280A interact with the passive activity loss rules?
§280A applies first. If the property is a residence and §280A caps the rental result at zero net income, there is nothing left for §469 to carry forward. If the property is not a §280A residence, the full rental loss is subject to the passive activity rules of §469, which allow carryforward or use against passive income.
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.