Tax Breaks You Didn’t Know You Could Get With a Vacation Home

Owning a vacation home can feel like a dream come true. Whether it’s a cozy cabin by the beach or a mountain getaway, it’s your personal slice of paradise. But here’s the thing: owning a vacation home isn’t just about getting away from it all—it can also offer some serious tax perks. You may be leaving those tax forms to your accountant, but there are a few benefits you might want to know about.

So, let’s break it down. Here are some tax breaks you probably didn’t realize you could claim when you own a vacation home. We’re going to keep it simple, and I’ll even talk about a special “loophole” for those who like to rent their places out for short periods. Let’s dive in.

1. Understanding Vacation Home Tax Basics

First things first: what qualifies as a vacation home? For tax purposes, the IRS usually sees it as a second home that you use for personal vacations. Think of it as a getaway, not your primary residence. But here’s the twist—if you rent it out at certain times of the year, it gets a little more complicated.

When you rent out your vacation home, the income you make can be taxable. However, the IRS offers deductions for expenses tied to owning and maintaining that home. How much you can deduct depends on how much the home is used for personal versus rental purposes.

Now, if you’re just using it for personal vacations, the rules are pretty straightforward. But the minute you start renting it out—whether it’s long-term or just for short stints—you’re opening the door to deductions. The key is understanding what’s considered a rental property vs. a personal-use property.

2. Deducting Mortgage Interest

Alright, if you’re like most people, your vacation home probably isn’t paid off. And that means you’re paying mortgage interest. Guess what? That interest might be deductible from your taxes.

Here’s the deal: you can deduct the mortgage interest on your vacation home just like you would for your primary residence—up to a certain point. For 2025, the IRS allows you to deduct interest on mortgage debt up to $750,000 (or $1 million if you’re married and file jointly).

However, if you rent out your vacation home, you can only deduct the mortgage interest on the portion of the property used for rental. So, if you rent it out for a few months, that interest can help offset some of your rental income and lower your tax bill.

3. Property Tax Deductions

Got property taxes on your vacation home? That’s another potential deduction! Property taxes are generally deductible, whether the property is your primary home or a vacation spot.

Again, the rules are a little different if you rent it out. If the property is used as a rental, you can deduct property taxes in proportion to the rental time. So, if you rent it out for half the year, you can deduct 50% of your property taxes.

Even if the home is for personal use only, you can still deduct property taxes—but be aware of the $10,000 cap on the total amount of state and local taxes (SALT) you can deduct. This cap includes property taxes, state income taxes, and local taxes. It’s something to keep in mind when planning your deductions.

4. Depreciation on Vacation Homes Used as Rentals

Now we’re getting into the good stuff. Depreciation is like magic for property owners. Here’s how it works: when you rent out your vacation home, the IRS lets you depreciate the property over a period of 27.5 years. This means you can deduct a portion of the cost of your property each year to account for wear and tear.

Let’s say your vacation home is worth $300,000. Each year, you could potentially deduct a portion of that value, lowering your taxable income. The catch? You can only depreciate the part of the property used for rental purposes. If you rent it out for 6 months and use it for personal vacations the other 6 months, you’d only be able to claim depreciation for that half of the year.

While depreciation can offset rental income and save you money, just remember—it’s a long-term strategy. And when you sell the property, you’ll have to deal with depreciation recapture, which means you might have to pay back some of those deductions. Still, it’s a great way to lower your tax bill in the short term.

5. Short-Term Rental Tax Loophole

Let’s talk about something a little sneaky—The Short Term Rental Tax Loophole. This one’s a favorite among vacation homeowners who want to make extra cash by renting their properties out for a short time. If you rent out your vacation home for fewer than 15 days per year, you don’t have to report the rental income to the IRS. That’s right—no tax on the money you make!

It’s important to note that this loophole only works if the rental period is short. If you rent out the property for 15 days or more, then the income becomes taxable, and you’ll have to report it. But if you keep it under that 15-day mark, you get to pocket the cash with no IRS interference.

However, don’t get too excited just yet. While it sounds like a free pass, you still need to be cautious. The IRS has specific rules about how much personal use you can have in the property while claiming the exemption. If you go over the 15 days of rental, you’ll owe taxes on all rental income. So, make sure you track everything carefully and stay within the rules.

6. Travel Expenses Related to the Vacation Home

Here’s another one that many homeowners don’t know about: travel expenses related to maintaining or managing your vacation home can be deductible. If you’re traveling to your vacation property for repairs, maintenance, or just to keep an eye on it, you may be able to deduct the costs of your trip.

This can include things like:

• Airfare (if you’re traveling specifically for maintenance)
  
• Lodging (again, tied to work on the property)
  
• Car expenses (if you’re driving to check on the place)
  

Now, if you’re using the property for personal vacations, you can’t deduct the travel costs associated with those trips. But if your trip is business-related—whether it’s for maintenance, repairs, or managing the property for rental—you might be able to deduct those costs.

7. Capital Gains Tax Exclusions

Selling your vacation home? You may be in for a nice surprise, as you could qualify for a capital gains tax exclusion. If you’ve lived in the property as your primary home for at least two of the past five years, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of the gain from your taxes when you sell.

But if you’ve been renting the place out, the exclusion might be reduced, depending on how much the home was used for personal vs. rental purposes. So, keep that in mind before you decide to sell.

8. Other Possible Deductions

Beyond the big-ticket items, there are some smaller but still significant deductions you could qualify for. These can include:

• Maintenance Costs: If you’re cleaning or repairing the property for rental purposes, those costs can be deducted.
  
• Utilities: If you pay for utilities like electricity, water, and internet for the property, they may be deductible.
  
• Insurance: Homeowners insurance, along with any special rental insurance, can often be deducted as part of your rental expenses.
  

9. Potential Pitfalls and How to Avoid Them

Before you get too excited about all these tax breaks, there are a few pitfalls to watch out for. The IRS likes to see clean, accurate records, so make sure you’re documenting everything.

Common mistakes include:

• Not tracking rental and personal use days correctly – It’s easy to lose track of how many days you’ve rented out the property. Keep a calendar!
  
• Claiming deductions that don’t apply – If you’re using your property for personal vacations, make sure you’re not trying to deduct expenses tied to personal use.
  

And remember, tax laws change all the time, so what worked last year might not apply now. Always double-check with a tax pro before filing.

Conclusion

Owning a vacation home isn’t just about getting away from it all—it can also come with some great tax perks. From mortgage interest deductions to special travel expenses and even a tax loophole for short-term rentals, there’s plenty of opportunity to save. Just be sure you understand the rules and keep track of your use of the property to maximize your deductions.

And, of course, if you’re ever unsure, it’s always a good idea to check in with a tax professional who can help you navigate the details. Your vacation home could end up being a much sweeter deal than you think!