Real Estate Tax Calc
Step 1: Does §280A's residence test apply?
Your first task each year is to compare personal use days to the two §280A thresholds. The property is a "residence" if personal use days exceed the greater of:
- 14 days, or
- 10% of your fair rental days for the year.
Suppose you rented the property for 90 days and used it personally for 12 days. The 10% test: 10% × 90 = 9. The 14-day test: 14. The threshold is the greater — 14. Your 12 personal days don't exceed 14, so the property is not a residence. Normal rental rules apply, and losses (subject to passive-activity limits) are deductible.
Now change the facts: 60 rental days, 15 personal use days. The 10% threshold is 6; the 14-day threshold is 14. Greater = 14. Your 15 personal days exceed 14 — the property is a residence, and §280A's loss limitation kicks in.
For a detailed walkthrough of how to count fair rental days, vacant days, below-market family rentals, and repair days, see Fair Rental Days on Schedule E.
Step 2: Prorate expenses between rental and personal use
Once you know you have mixed use, you must split every shared expense (mortgage interest, insurance, utilities, property taxes, maintenance, depreciation) between the rental and personal portions. How you allocate matters — the IRS mandates one method for residence-status properties, while non-residence properties have a choice.
IRS method (required for residence-status properties): Allocate shared expenses by rental days ÷ (rental days + personal use days). If you rented 60 days and had 15 personal days, the rental share is 60 ÷ 75 = 80%. This method is favorable to the rental side because personal vacation days are the denominator, not the full 365 days of the year.
Tax Court method (available for non-residence properties): Allocate by rental days ÷ 365. Under this method, 60 rental days gives a 60 ÷ 365 = 16.4% rental allocation. The vast majority of interest and taxes stay in the personal bucket, potentially flowing to Schedule A as itemized deductions. Because this method keeps more of the deductible interest and taxes in the personal column, it generally benefits taxpayers who itemize — but it results in lower rental deductions.
If your property crosses into residence status, you must use the IRS method and may not use the Tax Court method.
Step 3: Apply the §280A three-tier expense ordering rule
For a residence-status property, you deduct the allocable rental expenses in a mandatory sequence, and each tier can only absorb remaining rental income. The three tiers are:
Tier 1 — Mortgage interest and property taxes (the "always deductible" items). The rental portion of these is deducted first against gross rental income. The personal portion of mortgage interest and taxes goes to Schedule A regardless of whether you itemize (though the SALT cap and mortgage interest limits apply separately). Note: for a residence-status property, the deductibility of the personal portion of mortgage interest on Schedule A is not affected by the §280A rental rules.
Tier 2 — Operating expenses. Insurance premiums, utilities, maintenance, cleaning fees, property management fees, advertising, and similar cash operating costs are deducted second, only to the extent of remaining rental income after Tier 1.
Tier 3 — Depreciation (and other basis-recovery items). Depreciation is deducted last, only to the extent of remaining rental income after Tiers 1 and 2. Any depreciation that cannot be absorbed is permanently disallowed — it does not carry forward, and it does not reduce your depreciable basis for future years or for gain calculation at sale.
Worked numeric example: how §280A expense ordering actually plays out
You own a beach house. In 2026:
- Gross rental income: $24,000
- Fair rental days: 60 days
- Personal use days: 20 days (threshold: greater of 14 or 6 days → 14; your 20 days exceed 14 → residence status)
- IRS allocation ratio: 60 ÷ (60 + 20) = 75%
Annual shared expenses before allocation:
| Expense | Annual Total | 75% Rental Share | Tier |
|---|---|---|---|
| Mortgage interest | $18,000 | $13,500 | 1 |
| Property taxes | $4,000 | $3,000 | 1 |
| Insurance + utilities + maintenance | $9,000 | $6,750 | 2 |
| Depreciation (27.5-year residential) | $10,000 | $7,500 | 3 |
Applying the §280A ordering:
Gross rental income: $24,000
Tier 1 — interest + taxes: $13,500 + $3,000 = $16,500. Remaining rental income: $24,000 − $16,500 = $7,500
Tier 2 — operating expenses: $6,750. Remaining rental income: $7,500 − $6,750 = $750
Tier 3 — depreciation: Only $750 of the $7,500 allocable depreciation can be deducted. The remaining $6,750 of depreciation is permanently disallowed.
Net rental income after all deductions: $24,000 − $16,500 − $6,750 − $750 = $0 (the floor; no net loss allowed).
| Item | Deducted on Schedule E | Disallowed (lost) |
|---|---|---|
| Mortgage interest (rental share) | $13,500 | $0 |
| Property taxes (rental share) | $3,000 | $0 |
| Operating expenses (rental share) | $6,750 | $0 |
| Depreciation (rental share) | $750 | $6,750 |
| Net rental income | $0 | — |
Personal share of interest ($4,500) and taxes ($1,000) may be deductible on Schedule A as itemized deductions, subject to the SALT cap and other limits.
What happens to the disallowed $6,750 of depreciation?
It is gone. §280A does not create a carryforward. The $6,750 of depreciation you could not deduct in 2026 cannot be claimed in 2027 or any future year. It simply never reduces your taxable income.
Critically, however, the IRS has taken the position that you must still reduce your property's adjusted basis by the depreciation you were allowed or allowable — which may include some or all of the disallowed amount depending on interpretation. The safer position is that only the amount actually deducted (the $750 in the example) reduces basis. But this is a gray area worth discussing with a tax professional before sale, since a larger basis means less gain at sale.
§280A vs. passive activity loss rules: two separate limits
Many vacation rental owners confuse these two distinct limitation regimes. They can both apply — in sequence:
§280A (the residence test): Applies when personal use exceeds the threshold. Caps deductions at rental income. Disallowed amounts are permanently lost. Applies before passive-activity rules.
§469 passive activity rules: Apply to rental losses that survive §280A. If you have a valid rental loss (personal use below the threshold), that loss may still be limited because rental activities are passive — only deductible against other passive income, or up to $25,000 for taxpayers with MAGI under $100,000 who actively participate. Suspended passive losses do carry forward and are released at sale.
The key practical difference: a loss suspended under §280A is permanently lost; a loss suspended under §469 carries forward indefinitely and releases when you sell the property.
What if the property is a timeshare or co-ownership?
§280A applies to dwelling units, and a timeshare is a dwelling unit if it provides basic living facilities. The same personal-use-day counting rules apply, and co-owners must count not just their own personal days but also the personal days of family members using the unit — regardless of which co-owner invited them.
In a co-ownership (tenants in common, LLC), each owner's personal use days include days when any co-owner or their family members use the property for personal enjoyment. This can unexpectedly push one owner over the threshold even if their direct personal use is minimal. Document individual usage carefully in a shared log.
For a co-owned vacation rental, the §280A expense ordering applies at the entity level first, then flows to each owner's return. If the entity's total personal use days exceed the threshold, the residence limitation applies to the entire entity's rental income and expenses.
The 14-day minimum rental exception: when §280A does not apply at all
§280A(g) provides a narrow safe harbor: if you rent the property for fewer than 15 days during the year (regardless of personal use), you do not report any rental income, and you cannot deduct any rental expenses. The income is excluded and expenses are limited to the Schedule A items (interest and taxes) you could have deducted anyway. This is the so-called "Augusta Rule" for personal residences rented briefly.
If the property is rented for 15 or more days and personal use exceeds the threshold, the full §280A residence limitation with its three-tier ordering applies. The 14-day minimum rental exception and the 14-day personal use threshold are related but distinct provisions — do not confuse them.
Comparison: residence vs. non-residence vacation rental
| Feature | Residence (personal use > threshold) | Non-Residence (personal use ≤ threshold) |
|---|---|---|
| Net loss allowed? | No — capped at rental income | Yes — subject to passive-activity rules |
| Disallowed amounts carry forward? | No — permanently lost | Yes — PAL carryforward |
| Expense allocation method | IRS method required (rental / total days) | Tax Court method available (rental / 365) |
| Depreciation deductible? | Only to extent of remaining income after Tiers 1–2 | Full allocable share, subject to PAL |
| Schedule E outcome | Income = $0 (at minimum) | Can show net loss |
Frequently asked questions
Can I deduct a loss on my vacation rental?
Only if personal use stays below the threshold: the greater of 14 days or 10% of fair rental days. If personal use exceeds this threshold, §280A classifies the property as a "residence" and caps all rental deductions at gross rental income — no net loss is allowed, and nothing carries forward. If you stay below the threshold, the property is a true rental and losses (subject to passive-activity rules) are deductible.
What is the §280A expense ordering rule?
§280A requires rental deductions in a strict three-tier sequence: Tier 1 — allocable mortgage interest and property taxes; Tier 2 — operating expenses (insurance, utilities, maintenance, management fees); Tier 3 — depreciation. Each tier can only absorb remaining rental income after prior tiers. Any Tier 3 depreciation the rental income cannot support is permanently disallowed and does not carry forward.
Do suspended vacation rental deductions carry forward?
No. This is the critical difference from passive activity losses. Under §280A, disallowed rental expenses from a residence-status vacation rental are permanently lost — they do not carry forward to future tax years. Passive activity loss carryforwards (which apply to non-residence rentals under §469) do carry forward and release at sale.
What is the difference between the IRS method and the Tax Court method for allocating vacation rental expenses?
The IRS method (required when property is a residence) allocates by rental days ÷ (rental days + personal use days) — a larger rental share. The Tax Court method (available for non-residence properties) allocates by rental days ÷ 365 — a smaller rental share, but more expense stays in the personal bucket for Schedule A. For residence-status properties, only the IRS method is allowed.
How do I avoid §280A's loss limitation on my vacation rental?
Keep personal use days below the threshold: the greater of 14 days or 10% of your fair rental days. Repair and maintenance visits don't count as personal use days. Once the threshold is crossed for the year, the limitation is locked in — plan before year-end. Staying below the threshold lets the property be treated as a pure rental, with losses subject only to the §469 passive-activity rules (which carry forward).
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.