This can turn out to be a tax-efficient strategy. And if you minimize your personal use of the home, you may even qualify for a tax loss if rental expenses exceed rental income.
Your deduction potential lies in one key fact: the number of personal days you use the home compared with the number of rental days.
Specifically, your deductions will be capped at the income from your rental activity if your personal use exceeds either 14 calendar days or 10 percent of the time the home is rented out, whichever is larger. (Deductions for rental use are claimed on Schedule E, Supplemental Income or Loss.)
Tax law says that any day the rental home is used by a family member counts as a “personal use” day by you, even if you collect fair-market rent from the relative.
So, if you let your sister’s family stay at your vacation home over the weekend, that counts as personal use by you.
Finally, tax law says that any portion of a day spent at the vacation home generally counts as a full personal-use day, even if you’re there only a couple hours.
Bottom line: Keep tabs on rental use versus personal use during the year. You may be able to alter the tax results by adding or subtracting a day