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In the USA, how is the tax status determined on real estate where no rent is collected and which is occupied by friends or family? Is this considered a second home or a rental? Can something still be a considered a rental if no rent (or services) are actually collected?

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  • Don't some people have a second home as a holiday house which they don't rent out.
    – Victor
    Commented Jan 17, 2016 at 23:04
  • @Victor - if I'm not mistaken, a unoccupied second home is not equal to one that's occupied full time by someone other than the owner.
    – Eaten by a Grue
    Commented Jan 17, 2016 at 23:23
  • The point being that you are not collecting any rent from the house ! You could also have friends or relatives staying temporarily in your holiday house rent free or rent it out to others whilst you are not staying there. What is the purpose of the house? Is it to provide rental income or is it to provide accommodation for your elderly parents?
    – Victor
    Commented Jan 18, 2016 at 0:18
  • Which is the point I am making, the tax status depends on the purpose the house is used for.
    – Victor
    Commented Jan 18, 2016 at 5:37
  • I think I've been very clear about the purpose of the house. Do you want to post an answer or do you need more clarification?
    – Eaten by a Grue
    Commented Jan 18, 2016 at 5:46

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"Second home" is a property which you own and is in your personal use, but is not your primary residence.

The difference between "second home" and "rental" is in the deductibility of the mortgage interest and expenses. For "second-home" you can deduct mortgage interest up to a limit, on your Schedule A, if you itemize. For second home you cannot deduct expenses. For rental - you deduct mortgage interest from the rental income on Schedule E, and you can deduct expenses.

However, if your rent is below market and not at arms-length, you can only deduct up to the rental income. I.e.: you cannot rent at discounted prices to friends and family, and claim a loss. In this case the accounting is on Schedule E, but the bottom line cannot be negative (i.e.: expenses, including depreciation, that exceed the rental income - cannot be deducted and are lost for tax purposes).

An exception is for rentals of less than 15 days a year - these you don't even need to put on your tax return. I.e.: if you rent for less than 15 days a year, you get tax-free income, but can deduct no expense.

In your case, since the property is in your personal use but is not a primary property - it is a "second home" (unless you already have another "second home", you can only have one). If you to charge your friends and family rent - then the above-mentioned rules about expenses limitation will come into play and the property will be reported on Schedule E.

This is covered by the IRC Sec. 280A.

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  • Thanks, in what way is the property determined to be in one's "personal use" if they do not live there or have any personal property inside?
    – Eaten by a Grue
    Commented Jan 18, 2016 at 5:18
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    @billynoah personal use generally means operation not for generating profits. Holding a property only used by your family and friends is personal use.
    – littleadv
    Commented Jan 18, 2016 at 5:20
  • Ok that makes sense. It's just a bit counter-intuitive to call something a "second home" which is full occupied full time by other people.
    – Eaten by a Grue
    Commented Jan 18, 2016 at 5:26

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