A property that is used both personally and rented out falls under IRC §280A, one of the most complex and counterintuitive provisions in the Code. The tax treatment depends entirely on how many days the property is rented and how many days it is used personally. Too many personal use days and you cannot deduct rental losses. Too few rental days and you cannot deduct any rental expenses beyond the rental income. And there is a specific 14-day window - the Augusta Rule - where renting your home produces tax-free income regardless of any other rule.
Category 1 - Rented fewer than 15 days: The rental income is completely excluded from gross income. No rental expenses are deductible. The property is treated as a personal residence for all purposes. This is the Augusta Rule - up to 14 rental days per year produce tax-free income with no related deductions.
Category 2 - Rented 15+ days and personal use exceeds the greater of 14 days or 10% of rental days: The property is a "vacation home." Rental deductions are allowed but limited - they cannot exceed rental income (no net rental loss). Deductions are allocated between personal and rental use by days and must be deducted in a specific mandatory order.
Category 3 - Rented 15+ days and personal use does not exceed the greater of 14 days or 10% of rental days: The property is treated as a rental property for tax purposes. Full rental expenses are deductible. Net losses may be passive activity losses (subject to §469 limits) but are not capped at rental income. Standard rental property rules apply.
Personal use days are days on which the property is used by: the taxpayer or any co-owner for personal purposes; any member of the taxpayer's family (spouse, siblings, ancestors, lineal descendants) at any rental rate below fair market value; any person under a reciprocal arrangement (you use their cabin, they use yours); or any person at less than fair market rental. Days spent on repairs, maintenance, and renovations do not count as personal use days even if the taxpayer stays at the property while working.
Under §280A(g), if a taxpayer rents their personal residence for fewer than 15 days during the year, the rental income is excluded from gross income entirely. No rental deductions apply - but the income is completely tax-free. The provision is colloquially called the Augusta Rule because Augusta, Georgia residents historically rented their homes during the Masters golf tournament. The rule is straightforward: rent your home for up to 14 days per year at any rate and pay no tax on the income.
The Augusta Rule is occasionally used for business purposes: a business owner rents their home to their own corporation for meetings, retreats, or events. The corporation deducts the rent as a business expense; the homeowner receives tax-free rental income. The rent must be at fair market value for comparable meeting/event space (not inflated), and the meeting must be a genuine business event with documentation. IRS scrutiny of these arrangements has increased.
A short-term rental property where the average rental period is 7 days or fewer is not subject to §280A at all. Instead, it is treated under the general business activity rules - income is business income and losses are subject to the passive activity rules of §469, but the §280A vacation home limits do not apply. This is why many Airbnb hosts who rent by the night and never use the property personally operate in Category 3 or entirely outside §280A - they either have no personal use days (pure rental) or have average stays of 7 days or fewer (short-term rental exception).