Is a seasonal property better as a second home or not-for-profit rental for tax deductions?

This is actually a great question that confuses a lot of vacation property owners. Let me try to clarify a few things. For a not-for-profit rental (sometimes called a "hobby rental"), you're right that deductions are limited to the income you earn from the property. However, there are some important nuances: First, mortgage interest and property taxes follow different rules than other expenses. These are still potentially deductible on Schedule A if you itemize, subject to the normal limits (including the $10k SALT cap). But you can't double-dip - if you're deducting them against rental income, you can't also claim them on Schedule A. HOA fees and insurance would only be deductible against rental income in the not-for-profit scenario, and only proportionate to the time it's rented. These aren't deductible for a second home that isn't rented. The big difference comes down to how you use the property. If you use it personally for more than 14 days or 10% of the rental days (whichever is greater), it's considered a personal residence with rental activity, which has different rules than a pure rental property. You should also consider the long-term implications. Not taking depreciation might seem advantageous, but you're giving up a significant tax benefit that could offset some of your rental income.

After struggling with a similar vacation property tax situation last year, I discovered taxr.ai (https://taxr.ai) which really helped me understand my options. I had a lakehouse in Minnesota that I was renting out occasionally, and was totally confused about how to handle the deductions. Their system analyzed my property documents and broke down exactly how I should treat my property for tax purposes - whether as a second home, rental property, or not-for-profit rental. It even calculated the financial outcomes for each scenario based on my specific numbers. For my situation, treating it as a not-for-profit rental actually worked out better because I could deduct a portion of my maintenance costs, utilities, and insurance against the rental income, which I couldn't do as just a second home. The analysis showed me how to properly allocate expenses based on personal vs. rental use days.

Just wanted to follow up about my experience with taxr.ai. After seeing it mentioned here, I decided to give it a try with my mountain cabin situation. The results were surprisingly helpful! I uploaded my property documents and last year's tax return, and they analyzed everything. Turns out I was making a big mistake! I was treating my property as a pure rental when I should have been using the not-for-profit approach given my personal use days. They showed me that I could deduct a portion of my HOA fees, utilities, and maintenance costs against my rental income while still taking advantage of the mortgage interest and property tax deductions on Schedule A. This approach saved me from having to deal with depreciation recapture down the road while still maximizing my deductions. The detailed tax worksheet they provided made it super easy to file correctly. Definitely worth it for anyone with a vacation property!

I dealt with a similar situation last year and spent WEEKS trying to get someone at the IRS to clarify the not-for-profit rental rules. Literally couldn't get through to anyone who could help. I finally used Claimyr (https://claimyr.com) and got connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that with a not-for-profit rental, you report the income on Schedule 1 (Other Income) and then deduct expenses up to that amount. The key benefit is that you can deduct HOA fees, insurance, utilities, and maintenance costs proportionate to rental time - which you CANNOT do with just a second home. She also explained that if you're already itemizing, you can still deduct mortgage interest and property taxes on Schedule A (subject to limits), but you can't double-dip by also using these expenses to offset rental income. Without Claimyr, I would have been on hold for days trying to get this information.

OK I have to eat my words. After dismissing Claimyr as impossible, I decided to try it yesterday because I was desperate to resolve an issue with my not-for-profit rental property taxes. I expected nothing, but within 25 minutes I got a call back and was speaking with an actual IRS agent. I was honestly shocked. The agent confirmed everything I needed to know about how to handle my vacation property that I rent out occasionally. Most importantly, he cleared up my confusion about the SALT cap. Turns out the property taxes for my second home ARE subject to the $10k SALT limitation on Schedule A, but when I allocate a portion to offset rental income, that portion isn't subject to the cap. For anyone confused about vacation property tax treatment, definitely worth using this service to get an official answer directly from the IRS. Saved me hours of frustration.

I'm going through the same decision with our lake house. One thing nobody's mentioned yet is the 14-day rule. If you rent it for 14 days or less during the year, the rental income is completely tax-free and you don't even have to report it! You'd still get all the second home deductions too. This might be a better option depending on how you plan to use the property. We only rent ours out during a local festival when rates are super high, making about $9k in just two weeks, and we don't have to pay taxes on any of it.

Quick advice from someone who's owned several vacation rentals: Be super careful about community/HOA restrictions! Many gated communities have strict rules about rentals, including minimum stay requirements (often 30 days) or rental caps. Make sure you check your CC&Rs before making any decisions. Nothing worse than buying a property planning to rent it out and then discovering the HOA forbids short-term rentals.