What qualifies as a second home for tax purposes?

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Pacaso’s Editorial Team
September 25, 2025
An image of a luxury home helps underscore the topic of what qualifies as a second home for tax purposes.
Key takeaways
Owning a second home has personal and financial benefits, including tax deductions.
You’ll pay real estate taxes on each home, but some can be deducted.
Renting out your second home can affect how you report ownership to the IRS.
A property is viewed as a second home by the IRS if you visit for at least 14 days per year or use the home at least 10% of the days that you rent it out. Many homeowners rent out their second home, but personal and rental use affect taxes in different ways. 

How the IRS defines a second home for tax purposes

The IRS defines a second home based on how much you use it personally versus how much you rent it out. For a property to qualify, your personal use of it needs to be more than the greater of either 14 days or 10% of the days you rent it out at a fair market price. While the tax rules are key, lenders also have their own requirements. They often look for things like the property being a single home (not a timeshare) and a certain distance away from your primary residence, and they’ll want to see that you use it as a residence for at least part of the year.Here are other common characteristics of second homes:
  • Distance: Vacation homes are typically located in another city or state. In fact, some mortgage lenders require that a second home be at least 50 miles from the owner’s primary residence. Otherwise, it may be considered an investment property.
  • Purpose: A second home is usually used for personal enjoyment, such as a vacation spot or a future retirement location. Keeping the home for personal or family-only use simplifies the tax process. It allows you to deduct a portion of the mortgage interest and property taxes, similar to your main home.

Tax implications when your second home is a personal residence

Second homes come with a host of possible tax benefits from the IRS, but they depend on two key factors: whether you’re living in your second home more than you rent it out and how much money you’re taking in income from tenants. Let’s dive into the specifics:

Mortgage interest deduction

If you rent out your home for less than 15 days a year, it’s considered a personal residence and you’re eligible for itemized deductions like any other homeowner. For properties purchased after December 15, 2017, you can deduct mortgage interest on up to $750,000 of qualifying home acquisition debt across both your primary and second homes. Under H.R. 1, this $750,000 limit has been made permanent, so it will not revert to the prior $1 million limit in 2026.

Home equity interest deduction

In addition to deducting mortgage interest, you may also be able to write off interest paid on a home equity loan. The interest is only deductible if you use the borrowed funds "buy, build, or substantially improve" the home that secures the loan. This means you can't deduct interest on a home equity loan if you use the money for other purposes, like consolidating credit card debt or paying for a child's college tuition. This deduction is also subject to the same $750,000 combined mortgage debt limit that applies to your primary mortgage.

Property tax deduction

You can deduct property taxes on your second home, but the deduction is limited. The amount you can deduct for all state and local taxes combined (including property taxes, state income taxes, and/or sales taxes) is now capped at $40,000 per tax return ($20,000 if married and filing separately).This limit, which was recently increased by H.R. 1, applies to the total of these taxes paid on all of your personal residences if you own multiple homes. It's also important to note that this increased cap is temporary and is scheduled to revert to the previous $10,000 limit after the 2029 tax year.
Example: Greg and Rodney live in Michigan and purchase a second home in Arizona to enjoy every winter. The home stands empty during the summer unless Rodney’s kids stay there. Since Greg and Rodney stay more than 14 days and have no rental income, they can deduct a portion of the mortgage interest and property taxes. For the property taxes, their total deduction for all state and local taxes on both homes combined cannot exceed the $40,000 cap.

Tax implications when your second home is a rental property

If you rent out your second home for more than 14 days per year, the property is considered a rental for tax purposes. This changes the tax rules significantly, as the property can no longer be classified as a personal residence.
  • Reporting rental income: You must report all income earned from renting your property to the IRS. This income is taxable and needs to be included on your annual tax return.
  • Deductible expenses: You can deduct a portion of your expenses, such as mortgage interest, property taxes, insurance and maintenance costs. The deduction is based on the percentage of time the home was rented versus the total time it was used.
Example: If you rent out your home for 100 days and use it for personal use for 20 days, 83% of your expenses (100 rental days divided by 120 total use days) are deductible.

What about capital gains when selling?

When you sell a second home, any profit you make from the sale is generally subject to capital gains tax on a second home. This is a key difference from selling a primary residence, which may qualify for a significant tax exclusion.
  • The primary residence exclusion: The IRS allows you to exclude a large portion of the gain from selling your primary home from your taxable income. For 2025, this is up to $250,000 for single filers and up to $500,000 for those married filing jointly, provided you lived in the home for at least two of the last five years.
  • No exclusion for second homes: There is no similar exclusion available for a second home. This means the entire gain from your sale is taxable, so the tax consequences of selling a second home can be substantial. The gain is typically taxed at the long-term capital gains tax rates, which for 2025 are 0%, 15% or 20%, depending on your income.

Where the Pacaso model fits in

The Pacaso co-ownership model simplifies the tax implications of owning a second home. Because you cannot rent Pacaso homes out, the property is considered a personal residence. This means you can benefit from the same homeowner deductions as your first home, including deducting mortgage interest and a portion of your property taxes.Once you understand the tax rules, it’s easy to maximize the financial benefits of your second home. Pacaso allows you to enjoy a luxury property and its tax benefits without the stress of managing it all on your own. Check out our listings and learn more about how Pacaso can help you own the second home of your dreams.

What qualifies as a second home for tax purposes FAQ

01: How is a second home different from an investment property?

Investment properties are purchased for the sole purpose of generating income. Unlike second homes, investment properties are usually rented out full time to tenants or as vacation rentals. They are subject to stricter lending terms than owner-occupied second homes.

02: Can you change a property from a second home to an investment property?

If you’ve already bought a second home and decide you want to rent it out, you can change your occupancy status. It’s best to do this after you’ve owned property for at least a year, and you’ll need to report any new rental income to the IRS. 

03: What happens if I decide to sell my second home?

Selling a second home is a different experience from selling your primary residence. When you sell your primary home, you can claim a capital gains exclusion of up to $250,000 for single filers and up to $500,000 for couples filing jointly, provided you meet certain ownership and use tests. 

This exclusion, however, does not apply to a second home. The IRS views secondary properties as investment assets, which means any profit you make from the sale is subject to capital gains tax. The rate you pay depends on your income, but long-term gains are typically taxed at 0%, 15% or 20%.

04: Does the IRS view Pacaso as a second home?

Yes, because your Pacaso is a single-family residence that you own. By buying a share in a property-specific LLC, you gain a second home that you share with fellow co-owners. You’ll be guaranteed at least six weeks of time in your second home. 

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