Renting Out a Vacation Home: What You Need to Know in 2025

Thinking about renting out your beach house, lake cabin, or mountain getaway? You’re not alone. Many homeowners are turning their second homes into income-generating properties, especially during peak travel seasons and major events.

At North Georgia Tax Solutions, we’re here to help you understand how vacation home rentals are taxed—and when they’re not taxed at all.

The 14-Day Rule: Tax-Free Rental Income

Let’s start with one of the best-kept secrets in the tax code: If you rent out your home for 14 days or fewer per year, the rental income is completely tax-free.

You read that right. If your property is rented out for two weeks or less in a calendar year, you:
✅ Don’t have to report the income
✅ Don’t pay any federal income tax on it

This is often called the “Masters Exemption,” named for homeowners in Augusta, Georgia who rent out their properties during the Masters Golf Tournament for thousands of dollars—completely tax-free.

This tax break also benefits people renting to movie productions, political convention visitors, or attendees of major events like the Super Bowl.

When and Where This Applies

This exemption applies to your principal residence or second home and is perfect if:

  • You live near a popular vacation destination (beach, lake, or mountains)

  • Your home is in a high-demand event location (sports tournaments, music festivals)

  • You want to rent out your home while you’re away on vacation

💡 Example: You live in the North Georgia mountains and rent your home during fall foliage season for 10 nights at $500 per night. That’s $5,000 in tax-free income.

What You Can and Can’t Deduct

If you rent the property for 14 days or less:

  • You can’t deduct expenses like utilities, maintenance, or depreciation

  • But you can still deduct mortgage interest and property taxes on Schedule A (as you normally would for your personal residence)

If you rent the home for 15 days or more, it becomes a reportable rental activity, and you must:

  • Report the income on Schedule E

  • Allocate expenses between personal use and rental use

  • Only deduct rental expenses up to the amount of rental income (in some cases)

What Qualifies as a Vacation Home?

The IRS has a broad definition of “vacation home.” It includes:

  • Houses

  • Condos

  • Cabins

  • Mobile homes

  • Boats (yes, boats!)

To qualify as a residence, you must use the home personally for either:

  • More than 14 days, or

  • More than 10% of the days it’s rented (whichever is greater)

If your personal use is significant, your deductions for rental-related expenses may be limited.

Example Scenario (Updated for 2025)

You own a ski house in North Carolina:

  • Rented to guests for 121 days

  • Used personally by your family for 21 days

  • Unused the rest of the year

That’s 142 total days of use. Since your personal use was 21 days, 85% of the home’s expenses (mortgage interest, taxes, utilities, etc.) are deductible against rental income on Schedule E. The remaining 15% can only be deducted on Schedule A as personal use.

Final Thoughts

Renting out your vacation home can be a great way to earn extra income—and sometimes it’s even tax-free. But once you pass the 14-day threshold, the rules get more complex.

At North Georgia Tax Solutions, we’ll help you make the most of your rental income while staying compliant with IRS guidelines.

📞 Have questions about renting out your vacation home in 2025?
Let’s talk. We’ll guide you through what’s deductible, what’s not, and how to report it the right way.

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