IRS Publication 527 – If you’re a landlord or own a vacation home that generates rental income, understanding the tax implications is crucial to maximizing your deductions and staying compliant with the IRS. IRS Publication 527, “Residential Rental Property (Including Rental of Vacation Homes),” serves as the go-to resource for navigating these rules. Updated for the 2025 tax year and published on January 8, 2026, this guide covers everything from reporting rental income to deducting expenses and handling special situations like personal use of vacation properties. Whether you’re renting out a full-time investment property or occasionally listing your second home on platforms like Airbnb, this SEO-optimized article breaks down the key elements of Pub 527 to help you file accurately and potentially reduce your tax bill.
What Is IRS Publication 527 and Why Does It Matter?
IRS Publication 527 is an official IRS document that explains the tax treatment of residential rental properties, including apartments, houses, condominiums, mobile homes, and vacation homes. It focuses on properties where at least 80% of the gross rental income comes from dwelling units, excluding hotels or motels. The publication is essential for taxpayers who rent out properties for profit, as it details how to report income on your federal tax return, claim deductions, and apply rules for depreciation and losses.
For the 2025 tax year, key updates include clarifications on the Net Investment Income Tax (NIIT), the energy-efficient commercial buildings deduction via Form 7205, and excess business loss limitations using Form 461. If your rental activity involves personal use—such as staying in your vacation home—the rules get more complex, with limits on deductions based on usage days. Ignoring these can lead to audits or penalties, so consulting Pub 527 ensures you’re on the right track.
Types of Residential Rental Properties Covered in Pub 527
Pub 527 defines residential rental property broadly, including:
- Single-Family Homes and Apartments: Full-time rentals where you report all income and deduct expenses without personal use restrictions.
- Condominiums and Cooperatives: For condos, deduct association dues for maintenance but capitalize special assessments for improvements. In cooperatives, depreciate your stock in the corporation based on your share of the building’s depreciable basis.
- Vacation Homes: Properties you rent out part-time while using personally. Special rules apply if personal use exceeds 14 days or 10% of rental days.
- Partial Rentals: Renting out a room or part of your home requires allocating expenses between rental and personal portions (e.g., by square footage).
If you’re converting a personal home to rental use, your depreciation basis is the lesser of the fair market value (FMV) or adjusted basis at the time of conversion. This prevents over-depreciating appreciated properties.
Reporting Rental Income: What Counts and When to Include It
All rental income must be reported on your tax return, but the timing depends on your accounting method (cash or accrual). Common types include:
- Advance Rent: Report in the year received, even if it covers future periods.
- Security Deposits: Not income if refundable; treat as income if retained for damages or last month’s rent.
- Tenant-Paid Expenses: Include the value if tenants pay your bills (e.g., utilities) and deduct the expense separately.
- Property or Services: Report the FMV of any non-cash payments.
For vacation homes rented fewer than 15 days and used as your residence, you don’t report the income at all—it’s tax-free. However, if rented 15 days or more, use Schedule E (Form 1040) to report income and expenses. Part-interest owners report based on their ownership percentage.
Deductible Rental Expenses: Maximize Your Savings
One of the biggest benefits of rental property ownership is deducting ordinary and necessary expenses to offset income. Pub 527 lists examples like:
- Advertising and commissions
- Cleaning, maintenance, and repairs
- Insurance, utilities, and property taxes
- Mortgage interest (reportable on Form 1098)
- Legal and professional fees
- Local transportation (e.g., 70 cents per mile in 2025 for rental-related travel)
Deduct expenses in the year paid (cash basis) or incurred (accrual). For vacant properties, continue deducting maintenance and depreciation even if not rented. However, improvements (e.g., new roof or additions) must be capitalized and depreciated, not expensed immediately. Use the de minimis safe harbor to deduct small items under certain thresholds.
For mixed-use properties like vacation homes, allocate expenses based on rental vs. personal days using Worksheet 5-1 in Pub 527. If personal use qualifies the property as a “home,” deductions are limited to rental income, with excess carried forward.
Depreciation: Recovering Your Property Costs Over Time
Depreciation is a key deduction for rental property owners, allowing you to recover the cost of the building (not land) over its useful life. Under the Modified Accelerated Cost Recovery System (MACRS):
- Residential rental property: 27.5 years using straight-line method (GDS).
- Personal property (e.g., appliances): 5 years.
- Conventions: Mid-month for real property; half-year for most others.
Calculate your basis (cost minus land value), then apply annual percentages from IRS tables (e.g., 3.636% in year 6 for property placed in service in February). Special allowances include 100% bonus depreciation for qualified property placed in service in 2025. Report on Form 4562 if required.
Special Rules for Vacation Homes and Personal Use
Vacation home rental taxes hinge on the “14-day rule”:
- Rented 14 Days or Fewer: No income reporting or expense deductions needed if used as a residence.
- Rented 15 Days or More: Report income. If personal use > 14 days or 10% of rental days, it’s a “residence,” and deductions are prorated and limited to income.
Personal days include family use or below-market rentals. Exclude repair days from counts. For losses, passive activity rules may limit deductions to $25,000 if you actively participate and your modified adjusted gross income (MAGI) is under $100,000 (phased out up to $150,000). At-risk rules further restrict losses to your invested amount.
Loss Limitations: Passive Activity and At-Risk Rules
Rental activities are typically passive, so losses can only offset passive income unless you qualify as a real estate professional (over 750 hours and more than 50% of services in real property trades). Use Form 8582 for passive loss calculations. Excess business losses are limited via Form 461 and carried forward as NOLs.
How to Report on Your Tax Return?
Use Schedule E (Form 1040) for most rentals, listing income, expenses, and depreciation per property. Attach Form 4562 for depreciation details. For casualties/thefts, use Form 4684. If not-for-profit, report income on Schedule 1 (Form 1040), line 8j. Don’t forget the 3.8% NIIT on net investment income via Form 8960.
State and local taxes (e.g., occupancy taxes) may apply separately—check local rules.
FAQs About IRS Publication 527 and Vacation Home Rental Taxes
What if I rent my vacation home for less than 15 days?
You don’t report the income, and no deductions are allowed.
How do I distinguish repairs from improvements?
Repairs (e.g., fixing a leak) are deductible; improvements (e.g., new HVAC) are depreciated.
Can I deduct travel expenses for my rental property?
Yes, if ordinary and necessary for management—use actual costs or the standard mileage rate.
What is the 14-day rule for personal use?
It limits deductions if personal use exceeds 14 days or 10% of rental days.
Do I need to pay self-employment tax on rental income?
Generally no, as rentals are not considered a trade or business unless you provide substantial services (e.g., like a hotel).
Conclusion: Stay Compliant and Save on Taxes
IRS Publication 527 is indispensable for anyone with residential rental property or vacation homes. By understanding income reporting, expense deductions, depreciation, and personal use rules, you can optimize your 2025 tax return. Always keep detailed records and consider consulting a tax professional for complex situations. Download the latest PDF from IRS.gov and review updates annually to ensure compliance. With proper planning, your rental property can be a profitable investment without unexpected tax surprises.