If you own a vacation home or rent out a second property, there’s a tax case you should know about one that could save you thousands of dollars in lost deductions.
Let’s look at the case of Charles M. Akers, who owned a mountain cabin in Alpine, California. Like many second-home owners, he decided to rent out the property part-time through a property management company. On his tax return, he deducted over $20,000 in expenses related to the cabin.
Unfortunately, the Tax Court denied all of those deductions.
What Went Wrong
The issue wasn’t that Mr. Akers rented out his cabin. It was that he didn’t follow the IRS rules for proving material participation or differentiating between personal and rental use.
Here’s what happened:
- Mr. Akers claimed he spent time maintaining and managing the cabin.
- However, he didn’t keep any logs, receipts, or written documentation to prove those activities were business-related.
- The court determined that many of his “maintenance visits” were actually personal use days, since he couldn’t demonstrate otherwise.
That decision had serious consequences:
- The IRS reclassified the property as a personal residence, not a rental.
- Because the cabin was rented for only 12 days, it fell under the 15-day rule, which classifies it as a non-taxable event meaning the rental income wasn’t taxable, but neither were the expenses deductible.
- As a result, Mr. Akers lost all potential rental deductions he could have claimed.
How to Avoid the Same Mistake
If you rent out a vacation home or second property even part-time documentation is everything. To stay compliant and protect your deductions:
- Keep detailed records of every maintenance task, visit, and business-related activity.
- Track the time spent by anyone performing rental-related services (cleaners, repair crews, landscapers, etc.).
- Understand the IRS thresholds, such as:
- The 14-day or 10% rule, which defines how much personal use is allowed; and
- The 15-day rule, which determines whether your rental activity counts as taxable.
- The 14-day or 10% rule, which defines how much personal use is allowed; and
- Plan your personal use and rentals proactively, not after the year ends. A few unplanned trips can easily tip your property from “rental” to “personal use,” wiping out your deductions.
Plan Ahead, Don’t Wait Until Tax Season
The Akers case reinforces one major takeaway: the IRS requires documentation, not good intentions. You can’t claim deductions based on what you meant to do, only what you can prove you did.
If you own or plan to rent a second property, now is the time to:
- Review your rental schedule and documentation practices,
- Confirm whether your property qualifies as a rental or personal residence, and
- Strategize your end-of-year deductions to ensure compliance.
A little planning today can prevent a costly surprise tomorrow.
Ready to Talk Strategy?
If you’re thinking about renting your vacation home or already doing so, let’s talk before year-end. With the right records and strategy in place, you can maximize your deductions and keep more of your rental income where it belongs with you.
Book a tax consultation today to make sure your vacation home works for you, not against you.