Short answer

A vacation property you rent out and also use yourself sits under a rule that comes before every other rule discussed on this site. If your personal use in a year exceeds the greater of 14 days or 10 percent of the days the unit is rented at a fair rental price, the unit is treated as a home. Expenses, including depreciation, are divided between rental and personal days, and the rental share of the expenses is deductible only up to rental income; the excess carries forward, it does not create a loss. A cost segregation study still classifies the components correctly and accelerates depreciation on the rental share, but under the used-as-a-home limit the acceleration has nowhere to go this year except against rental income. Whether a study helps depends first on your days, then on everything else. This article explains the test, what counts as a personal day, how the limits work, and where a study fits. It is general education, not tax advice.

The test, in one table

Personal use during the yearTreatment
More than the greater of 14 days or 10 percent of fair-rental daysDwelling unit used as a home: expenses divided; rental deductions limited to rental income; excess carried forward
14 days or fewer, and not more than 10 percent of fair-rental daysNot used as a home: expenses divided by days; rental losses possible, subject to the passive activity rules
Rented fewer than 15 days in the yearRental income not reported; rental expenses not deducted

What counts as a personal day

Publication 527 is specific. A day of personal use is a day the unit is used by you or any other person who owns an interest in it; by a family member of any owner, unless the family member pays a fair rental price and uses it as their main home; by anyone under an arrangement that lets you use another dwelling unit; or by anyone at less than a fair rental price. Days spent primarily repairing or maintaining the property do not count as personal use even if family members are present. Letting friends stay free, or renting to relatives cheaply, are the common ways owners cross the line without noticing.

How the limit works

When the unit is used as a home, every expense is allocated between rental and personal use by days. Then the rental share is deducted only up to the rental income, in an order that takes mortgage interest and taxes first, then operating expenses, then depreciation. Depreciation, including anything a study accelerated, is last in the queue and is the first thing the limit cuts off. Whatever is disallowed carries forward to the next year, still subject to the same limit. The Code sets the rule in section 280A; the publication applies it.

The consequence for a study is direct. Accelerating depreciation on a property that is used as a home increases the amount waiting in the queue behind interest, taxes and operating expenses; it does not produce a loss against other income, and it may not even be used against this year's rental income. The acceleration is deferred by the limit itself.

Where a study still fits

  1. When personal use is within the limits. If you keep personal use to 14 days or fewer and not more than 10 percent of fair-rental days, the property is not used as a home, expenses are still divided by days, and the rental share of an accelerated deduction can create a rental loss. That loss is then subject to the passive activity rules and, for short average stays, the material participation rules covered in a separate article.
  2. For the classification itself. Whatever the limits, the study puts land improvements in 15-year property and furniture, appliances and carpeting in 5-year property, and records the assets for later dispositions and for the sale.
  3. For later years. Personal use is measured annually. A property that is a home this year may not be next year; the study's schedule is ready when the limit lifts.
  4. For the residential question. Short-term vacation rentals are often nonresidential real property, because transient units are not dwelling units, and a study documents the facts that bear on that.

What a study does not do

  • It does not change how many days you used the property.
  • It does not lift the used-as-a-home limit.
  • It does not make the rental share of the deduction usable against wages; that is the passive activity and material participation question, which comes after the days test.
  • It does not turn a property rented fewer than 15 days into a rental.

Planning the days

Owners who want the rental treatment plan the calendar: personal days at or under 14 and under 10 percent of fair-rental days; family stays at fair rental with written leases if they are to count as rental; repair days documented as repair days. Owners who want the property mainly as a vacation home accept the used-as-a-home limit and treat the rental as an offset to costs rather than a source of losses. Either choice is fine; the mistake is not deciding, then commissioning a study on a projection that assumed rental treatment.

Common errors

  • Counting a free stay for friends or relatives as a rental day.
  • Missing the 10 percent leg of the test on a property rented most of the year.
  • Assuming the study's first-year deduction is usable when the property is used as a home.
  • Forgetting the carryforward of disallowed expenses and losing it in a software change.
  • Reporting income and expenses for a unit rented fewer than 15 days.

What people ask on Reddit and other forums

The 14-day rule and cost segregation collide in the "cost segregation reddit" threads on r/AirBnB and r/realestateinvesting every season. The searches that lead people to these threads are usually phrased "vacation rental personal use depreciation", "14 day rule vacation home" and "cost segregation vacation home".

"I use my beach house three weeks a year and rent it the rest. Can I cost seg it?" Three weeks exceeds 14 days, so unless 10 percent of your fair-rental days is more than 21 days the unit is used as a home. A study accelerates depreciation on the rental share, but the deduction is limited to rental income; the excess carries forward.

"My parents stay for free every summer. Does that count?" Yes. Use by family members at less than fair rental is personal use.

"If I keep it under 14 days, do I get the STR loophole?" Staying within the personal-use limits makes it a rental for these rules. Whether the loss is nonpassive then depends on the average stay and material participation, a separate question.

"Do repair weekends count against me?" Days spent primarily on repairs and maintenance are not personal use, even if family is there.

Questions people also ask

What is the 14-day rule for vacation rentals?

If you use a dwelling unit personally for more than the greater of 14 days or 10 percent of the days it is rented at a fair rental price, it is treated as a home and rental deductions are limited to rental income.

Can I do cost segregation on a vacation home I use?

Yes, but under the used-as-a-home limit the accelerated depreciation on the rental share is deductible only up to rental income, with the excess carried forward.

Do family stays count as personal use?

Yes, unless the family member pays a fair rental price and uses the unit as their main home.

What if I rent it fewer than 15 days?

The rental income is not reported and rental expenses are not deducted.

Is my vacation rental 27.5-year or 39-year property?

It depends on whether the units are used on a transient basis; many short-term vacation rentals are nonresidential real property with a 39-year building period.

Sources