J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

9.7 Personal Use and Rental of a Residence During the Year

The number of personal-use days and fair-market-rental days for your residential unit determines how you must report rental income and expenses. If rental use exceeds 14 days and your personal use of the unit exceeds the 14 day/10% limit described below, the unit is treated as a residence rather than rental property. If it is treated as a residence, some of your rental expenses are deductible only to the extent of the rental income from the property (9.9).

Personal-use days include not only your days of personal use but may also include rental days to family members listed at 9.6 and use days under co-ownership agreements. See 9.8 for details on personal-use days.

The daily-use tests apply to any “dwelling unit” you rent out that is also used as a residence during the year by yourself or other family members. A dwelling unit may be a house, apartment, condominium, cooperative, house trailer, mini motor home, boat, or similar property with basic living accommodations, including any appurtenant structure such as a garage. A dwelling unit does not include property used exclusively as a hotel, motel, inn, or similar establishment.

The hotel/motel/inn exception applies only to property that is used exclusively in such a business. The exception does not apply to the dual-use portion of a hotel, inn, or bed and breakfast. In one case, the Tax Court agreed with the IRS that the owners of a three-floor bed-and-breakfast could not ...