Vacation Homes and Mixed-Use Dwellings (Section 280A(d))

How it works

Section 280A(a) starts from a blanket disallowance: no deduction for a dwelling unit the taxpayer uses as a residence, except where the rest of the section restores one. Section 280A(d)(1) is the gateway. It decides when a dwelling counts as a residence for the whole section on personal-use days alone, without regard to how the activity is characterized anywhere else in the Code. Personal-use days and rental days together then sort the property into one of three outcomes.

The rest of this page is the third outcome; I mark the boundaries of the other two rather than redevelop them.

Which part of Section 280A this is

Section 280A is a long provision, and its subsections are not interchangeable. The Augusta rule is subsection (g), the under-15-day exclusion, which is the first row above. The home office deduction is the subsection (c) carve-out for business use of a residence, a different use under different tests. This page is (d), (e) and (c)(5): the residence gateway, the rental-versus-personal allocation, and the cap on what is left.

The Florida piece

Florida has no individual income tax, so all of this is federal. The one state-level touchpoint is not an income tax at all: a unit rented for stays of six months or less owes Florida's transient rentals tax plus a county-level tourist development tax, commonly called a bed tax. That is a sales and excise obligation alongside the federal allocation, not part of it.

Who this applies to

This reaches anyone who both rents out and personally uses the same dwelling unit during the year. Section 280A(f)(1) defines a dwelling unit, and 280A(f)(2) attributes a shareholder's personal use to an S corporation, so holding the property inside one does not detach the owner's use from it.

The gateway test

A taxpayer is treated as using a dwelling unit as a residence for the year if personal-use days exceed the greater of 14 days, or 10 percent of the days it was rented at a fair rental. A day does not count toward that second limb if it was also a personal-use day.

Whichever limb is larger controls, so the threshold moves with rental volume. At 40 rental days the flat 14-day floor governs, because 10 percent of 40 is only 4. At 300 rental days personal use has to pass 30. Below the threshold the unit is never a residence for Section 280A purposes.

What counts as a personal-use day

A day is personal use if, for any part of it, the unit is used by any of these.

• An owner, or an owner's family. The taxpayer, anyone else who owns an interest in the unit, or a member of that person's family as Section 267(c)(4) defines it: spouse, siblings and half-siblings, ancestors, and lineal descendants. This applies whether or not fair rent is paid.
• Anyone under a reciprocal arrangement that lets the taxpayer use some other dwelling unit, a house swap, rent charged or not.
• Anyone paying less than a fair rental price, on the facts and circumstances. One person is carved out of this limb entirely: an employee whose use is governed by the Section 119 employer-provided-lodging exclusion, regardless of rent.

Days the taxpayer spends working substantially full time on repair and maintenance are not personal-use days, even where family members are on the premises that day for recreation.

The rule that gets misstated most

Charging a co-owner or a family member full fair rent does not turn their stay into a rental day. Under 280A(d)(2)(A) their use is personal use even at a full fair rental, with no general market-rent exception inside that limb. This is the single most misstated rule in this area.

The one carve-out is Section 280A(d)(3), and it is narrow. Rental to a person holding an interest in the unit, or to that person's family, is not personal use if they rent at a fair rental to occupy it as their principal residence and, where the renter is a co-owner, do so under a shared equity financing agreement, meaning two or more people hold undivided interests of more than 50 years and one pays the others rent to occupy. A family member who owns no interest and pays fair rent to live there as their main home is outside personal use on the same principle. A sibling's fair-rental week, or a vacationing adult child's, is not.

What it requires

Everything below is the third regime, except where I say otherwise.

The day ratio for operating expenses

Section 280A(e)(1) supplies one formula, and it governs maintenance-type expenses: utilities, insurance, HOA dues, ordinary repairs, the costs that do not affect basis. The rental share is rental days divided by total days used, meaning rental plus personal days, with vacant days out of both halves. It applies whether or not the unit is a residence, so a property with insubstantial personal use still allocates on it if there was any personal use at all.

The order deductions come off in

Inside the cap, deductions come off gross rental income in three tiers, each limited to whatever the tier above left behind.

1. Amounts otherwise deductible without regard to rental use: mortgage interest and property taxes.
2. Amounts that do not affect basis: operating and maintenance expenses.
3. Amounts that do affect basis: depreciation and casualty losses, taken last.

Section 280A(c)(5)(B) names the categories subtracted from gross rental income before the cap bites, and 280A(b) is what leaves mortgage interest and property taxes deductible regardless of business connection. The ordering itself comes from a Treasury regulation proposed in 1980 and never finalized, quoted in full in the Ninth Circuit's Bolton opinion and mirrored by the structure of the current Publication 527 worksheet.

What the third tier cannot absorb carries forward indefinitely against the same dwelling, and 280A(c)(5) says in terms that it stays subject to the same cap in later years, including a year in which the unit is no longer used as a residence.

The allocation method that is genuinely disputed

Section 280A(e)(2) removes mortgage interest and property taxes from the (e)(1) formula, because they are deductions otherwise allowable whether or not the unit was rented. It supplies no substitute formula, and two positions grew into that gap.

The IRS applies the same ratio as maintenance expenses, rental days over total days used, both in the current Publication 527 worksheet and in that proposed regulation. Bolton cites the proposed rule as section 1.280A-3(d) and McKinney cites what is evidently the same rule as section 1.280A-2(d). I flag the inconsistency rather than pick a side, since neither citation reflects a currently effective final regulation.

The court method is rental days over 365, because interest and property taxes accrue ratably on every day of the year rather than only on days the property is used. Bolton v. Commissioner, Ninth Circuit, 1982, affirming a regular Tax Court decision, rejected the Commissioner's proposed-regulation position as unreasonable. McKinney v. Commissioner, Tenth Circuit, 1983, reviewed the same formula on different facts and agreed. No circuit has sided with the Commissioner, and neither decision has been reversed, overruled, or superseded by a final Treasury regulation.

Publication 527 does not mention either case or acknowledge the split, so a return following its worksheet literally takes the position both circuits rejected. The two ratios produce different first-tier amounts, the first tier comes off first, and what it consumes is room the third tier will not get.

The court method is not automatically better, though. Interest and taxes not allocated to the rental remain a personal itemized deduction on Schedule A, subject to the ordinary Section 163(h) limits on qualified residence debt and to the cap on state and local taxes, which is worth something only to an owner who itemizes and has room under both.

How it gets reported

A property outside the de minimis regime reports on Schedule E, with no self-employment tax. Hotel-like personal services, daily maid service, concierge, meals, rather than ordinary between-stay cleaning, meet the significant-services standard in the temporary passive activity regulations and push the activity onto Schedule C and into that tax. A de minimis property is not on Schedule E at all.

What you need to document

Every number in the allocation traces back to a single artifact, and it is assembled from the booking records and the owner's own calendar rather than reconstructed at filing time.

The day log

Every day of the year sorted into rented at a fair rental, personal use, or vacant. One long family stay slipping through as a rental day changes the answer.

Who used it, and on what terms

For every stay by a relative or a co-owner: who they are, what they paid, and whether they were occupying the unit as their principal residence. That last fact decides whether a fair-rent week counts as personal use.

The repair days

Which days were spent working substantially full time on repair and maintenance, and what the work was. A weekend of light touch-up with the family also there on vacation does not qualify.

The allocation percentages actually used

And, where the return relies on the court method, a workpaper citing Bolton and McKinney, rather than an unexplained departure from the published worksheet.

The carryforward schedule

Property-specific and indefinite, and worth something only if it is tracked. It does not appear automatically on the next year's rollover the way a passive activity loss carryforward does, so it needs a workpaper of its own.

Where it goes wrong

This is not an aggressive position and it is not a listed transaction. It is a compliance mechanics question with a decades-old circuit split inside it, and the risk is a return defaulting to the wrong day count or the wrong allocation method without documenting why.

Miscounting personal-use days is the most common failure. Typically a fair-rental week given to a sibling, or to an adult child not living there as a main home, gets logged as a rental day. A day moved from the rental column to the personal column moves both sides of the gateway test at once.

Over-claiming the repair-day carve-out is the mirror image. Only days spent substantially full time on the work leave the personal count.

Defaulting to the Publication 527 ratio for interest and taxes without considering Bolton and McKinney is not wrong; it is a defensible, IRS-published position. It does forfeit current-year deduction relative to the better-supported court method with no legal requirement to do so, and the cost compounds where a carryforward has been quietly accumulating for years.

Testing the passive activity rules before the residence gate

Section 280A operates independently of, and before, the way Section 469 characterizes the activity. A condo with a short average stay can be a residence under 280A(d) because personal use is heavy, and at the same time not a rental activity under the temporary passive activity regulations because the average guest stay is seven days or less. The second does not override the first. If personal use trips the residence gate, 280A(c)(5) caps deductions at gross rental income before Section 469 matters at all, and a result capped at zero leaves no loss for material participation to convert.

That ordering has to be right on a property that would otherwise reach the short-term rental treatment. Only where personal use stays under the 280A(d) threshold does a real loss survive to Section 469.

Confusing this with the Augusta rule misroutes the analysis a different way. If actual rental days come in under 15, the cap-and-carryforward mechanics here stop applying. That property belongs to Section 280A(g), which excludes the rent from income rather than capping deductions against it, and that is a better outcome, not a variant of this one.

Depreciation claimed along the way comes back at the end. Once the property is sold, or fully converted to rental with personal use dropping out entirely, the standard recapture mechanics apply to the depreciation actually claimed, which I cover in depreciation and recapture rather than re-derive here.

A situation where this comes up

The fact pattern I see constantly is a beach or lake place in Central Florida that the owner lists on a platform and also uses for family weeks. The property is genuinely rented and genuinely used, and the return has to sort out which days were which.

Two things decide the outcome, and the booking report answers neither. The first is what happened on the days a relative was there; an owner who charged a sibling a stranger's nightly rate reasonably assumes that was a rental week, and it was not. The second is which ratio went on the mortgage interest and the property taxes.

One version of this is worth flagging: the owner who has been told a short average stay unlocks losses against other income. That can be true, and it is not true here if personal use trips the residence gate. So what I want to see before anything is settled is the calendar, with the family weeks on it. The rest is arithmetic once the days are honest.