Real Estate Tax Calc
Step 1 — Classify your property: residence or pure rental?
The first question IRC §280A forces you to answer is whether the property qualifies as a residence for the tax year. This hinges entirely on the relationship between two numbers you report on Schedule E: fair rental days and personal use days.
The property is a residence if personal use days exceed the greater of:
- 14 days (the absolute floor), or
- 10% of your fair rental days (a relative test that scales with rental activity).
The IRS compares both tests and uses the one that produces the larger threshold. So for a property rented 200 days, the threshold is 20 personal-use days (10% of 200 > 14); for a property rented only 100 days, the threshold is 14 days (14 > 10% of 100 = 10).
If personal use does not exceed either threshold — including zero personal use — the property is a pure rental. Pure-rental status means no §280A limitation: you deduct all rental expenses, net losses flow through the passive-activity rules, and you generally report on Schedule E without restriction.
Step 2 — Identify and prorate your expenses
When you have both rental days and personal-use days, most expenses that benefit the property are mixed-use expenses that must be prorated between rental and personal use. Two categories stay completely separate:
- Rental-only expenses — cleaning fees between rental guests, advertising, platform commissions, reservations software. These are 100% rental and need no proration.
- Personal-only expenses — none for Schedule E purposes; personal recreational use does not create deductible expenses.
The mixed-use expenses that need proration include: mortgage interest, property taxes, insurance premiums, utilities, maintenance, HOA fees, and depreciation. For each, you allocate a portion to rental use and a portion to personal use.
The two proration methods: IRS vs. Tax Court
Congress gave you two ways to split mixed-use expenses, and the choice materially affects your tax outcome.
IRS method (required for residence-status properties): Prorate by rental days ÷ (rental days + personal use days). This denominator is "total days of use." For a property rented 60 days with 20 personal-use days, the rental fraction is 60 ÷ 80 = 75%. Mortgage interest and property taxes, in particular, follow this method when the property is a residence. The IRS method tends to allocate more expense to the rental side.
Tax Court method (Bolton v. Commissioner, 1981): Prorate by rental days ÷ 365. For the same property (60 rental days), the rental fraction is 60 ÷ 365 = 16.4%. This method spreads the cost over the entire year, allocating far less to rental and more to personal use — which means fewer rental deductions but more mortgage interest and property taxes potentially deductible on Schedule A as personal itemized deductions.
The practical difference is significant. For a property with mortgage interest of $20,000:
- IRS method: $15,000 allocated to rental (75%); $5,000 to personal (Schedule A).
- Tax Court method: $3,288 allocated to rental (16.4%); $16,712 to personal (Schedule A).
Which is better? It depends. If rental income is small or zero, the Tax Court method moves more interest to Schedule A, which may be more valuable if you itemize. If rental income is large, the IRS method lets you match more expense against that income. For properties in §280A residence status, however, the IRS method is mandatory for interest and taxes once you are prorating under the residence rules — the Tax Court method applies only to non-residence properties where the owner is trying to maximize itemized personal deductions.
Step 3 — Apply the mandatory expense-ordering rule
Once a property crosses into residence status, §280A imposes a strict three-tier ordering for deducting rental expenses against rental income. You cannot skip tiers or apply them in a different sequence.
Tier 1 — Mortgage interest and property taxes (the rental share): These are deducted first against rental income. This is true even if they alone absorb all rental income. If the rental share of interest and taxes exceeds rental income, you have exhausted the rental deduction at Tier 1, and no Tier 2 or Tier 3 expenses are deductible. The personal share of mortgage interest goes to Schedule A as an itemized deduction; the personal share of property taxes goes to Schedule A subject to the $10,000 SALT cap.
Tier 2 — Operating expenses (the rental share): Insurance, utilities, maintenance, HOA fees, and other cash operating costs are deducted second, only to the extent that rental income exceeds Tier 1 deductions. If Tier 1 already consumed all rental income, Tier 2 is disallowed and permanently lost.
Tier 3 — Depreciation (the rental share): Depreciation is last. It can only be deducted to the extent that rental income exceeds Tier 1 plus Tier 2 deductions. In many vacation-home cases, depreciation is entirely disallowed — not because the property has not been rented, but because earlier tiers have already used up all deductible room.
This ordering rule is intentionally unfavorable to owners of residence-status properties. Depreciation — the most valuable deduction because it has no cash cost — is relegated to last place and is frequently lost entirely.
Worked numeric example — step by step
You own a beach house. In 2026, you rented it for 80 days at fair market rent ($250/day = $20,000 gross rental income), used it personally for 20 days, and left it vacant for 265 days.
Step 1 — Residence test: 10% of 80 rental days = 8 days. 20 personal-use days exceed both 8 (the 10% threshold) and 14 (the 14-day threshold). The higher threshold is 14. Your 20 personal-use days exceed 14, so the property is a residence under §280A.
Step 2 — Prorate mixed-use expenses (IRS method required since it is a residence): Rental fraction = 80 ÷ (80 + 20) = 80%. Annual expenses:
| Expense | Annual total | Rental share (80%) | Personal share (20%) |
|---|---|---|---|
| Mortgage interest | $18,000 | $14,400 | $3,600 |
| Property taxes | $5,000 | $4,000 | $1,000 |
| Insurance + utilities + maintenance | $8,000 | $6,400 | $1,600 |
| Depreciation | $9,000 | $7,200 | $1,800 |
| Platform/advertising (rental-only) | $2,000 | $2,000 | $0 |
Step 3 — Apply the three-tier ordering against $20,000 rental income:
| Tier | Expense | Rental share | Deductible | Income remaining |
|---|---|---|---|---|
| Pre-tier (rental-only) | Platform / advertising | $2,000 | $2,000 | $18,000 |
| Tier 1 | Mortgage interest + taxes | $18,400 | $18,000 (capped) | $0 |
| Tier 2 | Insurance / utilities / maintenance | $6,400 | $0 — disallowed | $0 |
| Tier 3 | Depreciation | $7,200 | $0 — disallowed | $0 |
Result: Schedule E shows $20,000 income and $20,000 deductions — net $0. The $6,400 of operating expenses and $7,200 of depreciation are permanently disallowed. The personal share of interest ($3,600) and property taxes ($1,000) flow to Schedule A as itemized deductions (subject to the SALT cap for taxes). Note that because Tier 1 interest and taxes slightly exceeded rental income, $400 of the Tier 1 amount is also disallowed — only $18,000 of the $18,400 rental-share interest+taxes is used.
What if personal use is below the threshold? (Pure-rental treatment)
Now change the fact pattern: same beach house, 80 rental days, but only 10 personal-use days. The threshold is max(14, 8) = 14 days. Ten personal-use days do not exceed 14, so the property is a pure rental — §280A's limitation does not apply.
Under pure-rental treatment, you deduct all rental expenses without the three-tier ordering cap. After prorating for the 10 personal-use days (IRS method: 80 ÷ 90 = 88.9% rental fraction), the deductible rental expenses would be:
- Mortgage interest: $18,000 × 88.9% = $16,002 (remaining $1,998 goes to Schedule A)
- Property taxes: $5,000 × 88.9% = $4,445
- Insurance/utilities/maintenance: $8,000 × 88.9% = $7,112
- Depreciation: $9,000 × 88.9% = $8,001
- Platform/advertising: $2,000 (100% rental)
- Total rental expenses: $37,560 against $20,000 income = $17,560 net rental loss
That $17,560 loss flows through the passive-activity rules: deductible against rental income from other properties, potentially deductible under the $25,000 allowance if MAGI is $100,000 or less, or suspended and carried forward if the passive-loss limits apply. The loss is not permanently lost — it survives until it can be used.
This comparison illustrates the enormous tax difference between residence status (§280A: losses permanently disallowed) and pure-rental status (passive-activity rules: losses deferred but not forfeited). Staying below the personal-use threshold is worth significant money.
The 14-day de minimis exception: renting below the threshold
There is also a mirror rule: if you rent the property for 14 days or fewer during the year (regardless of personal use), the gross rental income is excluded from your income entirely — you owe no tax on it — and you claim no rental deductions. This is the "Master's exception" (named for homeowners who rent during major golf tournaments). The rental income is completely tax-free, but so are the expenses.
Once rental days exceed 14, you must report all gross rental income and allocate expenses. The choice is binary: 14 or fewer rental days is tax-free; 15 or more rental days requires full reporting under the §280A framework.
Depreciation and the adjusted basis issue at sale
Even when depreciation on a vacation rental is disallowed year by year under §280A, the IRS considers the property's basis to be reduced by the depreciation allowable — not just by what was actually deducted. This is the "allowable or allowed" rule under IRC §1016(a)(2).
In practice, a taxpayer who owns a vacation home in §280A residence status for 10 years, claims zero depreciation each year because the three-tier rule prevents it, and then sells the property may still face depreciation recapture on the amount that could have been taken. The safe approach is to track allowable depreciation each year and confirm with a tax professional whether the adjusted basis should be reduced, since the IRS can assert the reduction even if no deduction was claimed.
Frequently asked questions
Can I deduct rental losses on a vacation home I also use personally?
Only if personal use stays below the greater of 14 days or 10% of your fair rental days. If it exceeds that threshold, IRC §280A caps rental deductions at rental income — no net loss is allowed, and the excess is disallowed (not carried forward).
What is the expense-ordering rule under §280A?
When personal use exceeds the threshold, you deduct expenses in a mandatory three-tier order: (1) interest and taxes first, (2) operating expenses like insurance and utilities second, (3) depreciation last. You stop once deductions equal rental income — the lower tiers are disallowed.
What is the difference between the IRS method and the Tax Court method for prorating vacation rental expenses?
The IRS method allocates expenses by rental days ÷ (rental days + personal use days). The Tax Court method uses rental days ÷ 365. The Tax Court method shifts more cost to personal use, increasing potentially itemizable mortgage interest and property taxes — but it also shrinks deductible rental expenses. The IRS method is mandatory for residence-status properties.
Does the §280A income cap apply to mortgage interest and property taxes?
No — but the rental share of these costs is applied in Tier 1 against rental income. If Tier 1 alone uses up rental income, the remaining rental-share interest and taxes are disallowed. The personal-use share is always deductible on Schedule A (subject to the SALT cap for taxes), so these items are never completely lost — they just shift between rental and personal.
Are suspended vacation home rental expenses carried forward?
No. Disallowed expenses under §280A are permanently lost — they cannot be carried forward to a future year, unlike passive activity losses under IRC §469. This is a critical distinction: §280A is a permanent cap on rental deductions, not a deferral mechanism.
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.