Vacation Home Rules and Regulations

What you need to know about tax laws and other restrictions before buying a vacation home

If you're thinking about buying a vacation home, there are several issues you should be aware of. Depending on how you plan to use your vacation property, tax, municipal and mortgage regulations may change, and it's important to understand these restrictions. Since tax laws become more complex when dealing with vacation homes as investments or strictly rental properties, we're going to focus on tax structure when you choose to designate the home for personal use and only rent on occasion.

Tax implications for buying a vacation home for your family and occasionally renting

Your vacation property will count as your personal residence (according to the IRS) if you use it one of two ways:

  1. You personally use the property for whichever is higher: 14 days or 10% of the days you rent it. If you rent for 200 days, you must be there for 20. If you only rent for 100 days, you must be there for 14 as 10% would only be 10 days.
  2. You do not rent the property, or if you do, you rent it for fewer than 15 days during the year.

Whether or not the IRS considers your home a personal residence is important as it affects your ability to deduct mortgage interest, property taxes and rental expenses.

Currently, you can deduct interest on up to $1 million of mortgage debt and an additional $100,000 for home equity on your vacation property and primary residence combined. You should always speak to a tax professional to ensure you are deducting taxes properly.

Municipal restrictions for a vacation property

In addition to the tax and legal implications, there may also be practical limitations on what you can do with your vacation property, depending on where it is located.

  • You may not be able to build additions or perform other construction on the property depending on lot size and location.
  • If you are on the water, you may have regulations regarding your drainage or sewage system.
  • With a remote vacation property, you may face difficulties running electric, telephone or cable wires to the home. Road or water access may also become difficult in winter months.
  • If you intend to rent out the property, even for a short time, be sure the land is zoned for short-term rentals.
  • Property insurance may cost more than your primary residence if your vacation property is farther from aid and vacant much of the year. This increases the potential for damage. You may be able to offset this by hiring a caretaker to maintain the home.

Vacation home rules and regulations for a mortgage

When you are considering purchasing a vacation home, one of the most important factors is how you will pay for it. Obtaining a new mortgage may be more difficult than your first mortgage as your borrowing risk increases with each property you acquire. Since you would be more likely to default on your vacation property than your primary residence if you had financial trouble, you could face stricter underwriting. For this reason, it's wise to save up, make a large down payment and get a smaller mortgage. Make sure you account for all expenses when saving, including closing costs, repairs, furnishings and any touch-ups like fresh paint or construction for your vacation property.

Another option may be using home equity from your primary residence to purchase your vacation home. However, if you choose this option, you cannot deduct the interest on home equity payments as personal mortgage interest.

Consider a vacation property mortgage from Citizens Bank

Whether you're looking for a new mortgage or borrowing from your home equity to purchase your vacation property, Citizens Bank can help. Our lenders will work with you to determine the best option to finance your new vacation home. For more information on vacation home rules and regulations, speak to a home loan representative at 1-888-514-2300.


We're here to help

Get started online
or call 1-888-514-2300
FRI: 8 AM - 6 PM
SAT 9 AM - 3 PM

Mortgage Servicing:


Find a branch or ATM


Find a Home Loan Originator

search for a local home loan originator in your area


NMLS ID# Search Tool

Access our colleagues' NMLS ID#


Checking Customers Save

Save 0.125 percentage points off your mortgage interest rate with a Citizens Bank checking account**.