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 unit must be used by you as a residence (personal use of more than 14 days) for §280A(g) to apply. 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. Rental expenses are deductible after allocating expenses between rental and personal use days (§280A(e)). 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), even if the family member pays rent, unless the family member uses the property as a main home and pays a fair rental price; any person under a reciprocal arrangement (you use their cabin, they use yours); or any person at less than fair market rental. A day spent working substantially full time repairing and maintaining (not improving) the property does not count as a personal use day, even if family members use the property for recreation that day.
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 rental with an average period of customer use of 7 days or fewer is not a "rental activity" for the passive activity rules (Treas. Reg. §1.469-1T(e)(3)(ii)(A)), so losses are passive only if the owner does not materially participate. It does not take the property outside §280A: if the owner's personal use exceeds the greater of 14 days or 10% of the days rented at a fair rental, the §280A(c)(5) rental income cap and the §280A(e) allocation still apply. Many Airbnb hosts who never use the property personally operate in Category 3 because they have no personal use days (pure rental).