We have a vaction home we use about 80 days a year, and rent about 3 months during the season.What portion of the annual expenses are deductable against the rental income???
In general, the allocation of expenses for mixed-use rental property is based on the number of days rented at fair rental value divided by the total number of days the property is occupied. In your case this would be 90(3 months) divided by 270(90+80) or 52.9%.There was a tax court decision (Bolton) that allowed a different method for apportioning certain expenses.Deductions for mixed use property are limited to gross rental income. For this purpose gross rental income equals total rental receipts reduced by expenses for obtaining tenants such as advertising and realtor's fees.There are ordering rules for expenses. Expenses that are allowable regardless of the rental activity are applied first (such as qualified mortgage interest, property taxes, casualty losses). The balance of these are then taken on Schedule A. But if your vacation home is a third residence, the non rental portion of mortgage interest is considered nondeductible personal interest.Rental expenses that do not affect the basis of the property are taken next (example, utilities, management fees, maintenance fees).Expense that will affect the basis of the property are taken last (example depreciation).See IRS Pub 527 for all the details.