what is a vacation home 
a vacation home is a secondary dwelling other than the owner s principal residence and is used primarily for recreational purposes including vacations or holidays also known as a recreational or secondary property or residence a vacation home is often situated in a different location from the owner s primary residence because vacation homes are only used at certain times of year many owners rent out these dwellings when they are not using them understanding vacation homesproperty is divided into several different categories usually for income tax purposes the property that a homeowner lives in is referred to as their principal or primary residence this property can be a home apartment condominium or trailer in order to qualify as a principal residence the homeowner whether that s a single individual a couple or a family must live there for the majority of the year 1a vacation home on the other hand is much different this type of property is often considered to be a second home in most cases it s in a different location than the owner s primary principal residence as noted above the owner may use this property for recreational purposes including vacations usually for a few days or weeks each year just like primary residences vacation homes can take any form the most popular being cottages or condos the distinction between primary residence and vacation property may be a blurred line to individuals especially if they spend a considerable amount of time in both locations however the distinction is important for several financial matters renting vacation propertyaside from providing the homeowner with a place to get away vacation properties can also be rented out to produce additional income when they re not being used in this case a couple with a principal residence in maine may own a vacation home in florida the couple may visit the florida residence during maine s coldest months while renting it out to other people for the rest of the year although they re a great asset to have vacation homes may be a financial challenge for instance a mortgage on a vacation home may have a higher interest rate than a loan on a homeowner s primary residence that s because the owner may have a higher risk of default as individuals are more apt to save their primary residence than a temporary one in the event of a reversal of fortune owners of vacation property may also be taking on a second mortgage if the mortgage of the primary property has yet to be paid off yet this form of investment is also risky when considering the potential for rental income renting out a vacation property does not provide stable or consistent cashflow even if the property is in a desirable location most vacation property renters will service shorter term customers compared to tenants or long term residents therefore landlords of vacation property must prepare for potential cashflow shortfalls and be available to step in and pay for expenses not covered by rental income consider that the irs may define vacation property differently than you therefore you might consider yourself as owning or not owning vacation property though the irs may disagree tax implications of renting vacation propertyin order for a vacation home to be classified as a residence by the irs it must offer basic living accommodations including sleeping space as well as cooking and bathroom facilities the home must also be used for personal purposes for more than 14 days and 10 of the total number of days the home is rented at a fair rental value 2 it is also increasingly popular to rent out vacation homes on a short term basis through services like airbnb or vrbo the vacation home tax rules for a residence will apply if those requirements are met deductible expenses would include the rental portion of qualified home mortgage interest real estate taxes and casualty losses other expenses that can be deducted stem directly from the rental property and include advertising payment of commissions legal fees and office supplies expenses related to the maintenance and operation of the rental property are also deductible 3if a vacation home is rented out for 15 days or more per year the rental income must be reported to the internal revenue service irs using schedule e 2 owners can also deduct any expenses associated with that residence if the home is considered a personal residence the deducted expenses cannot exceed the rental income if the vacation home is not a personal residence the deducted expenses can exceed this threshold but the reported loss may be limited by passive activity regulations 4income must be reported if a vacation home is rented for 15 days or more each year 2financial implications of owning vacation homeowning a vacation home may be financially similar as owning a primary residence in that light there are many financial aspects of owning a vacation home meaning the owner must consider more than just the purchase price of the piece of real estate they buy below are the most common operating costs a vacation home owner can expect to incur in addition to the ongoing expenses above vacation home owners must consider how real estate properties may fluctuate in value the market price of a property may increase or decrease based on prevailing macroeconomic conditions such as monetary policy interest rates or industry supply selling vacation property