Yes — cost segregation works on a second home or vacation home, but only if your personal use stays under the greater of 14 days per year OR 10% of the days it was rented at fair market value. That's the IRC §280A(d)(1) threshold. Below it, the property is treated as a pure investment property — full cost seg, full bonus depreciation, STR loophole in play. Above it, the property is a "dwelling unit used as a residence," rental deductions are capped at rental income, and cost seg loses most of its value. The single decision that determines whether cost seg is worth it on a mixed-use property is how many nights you plan to sleep there yourself.
The §280A threshold in one line
Property is treated as a residence — with rental deductions capped at rental income — if personal use exceeds the greater of 14 days or 10% of the days rented at fair market value.
Example: if your STR is rented at fair market rate for 200 days, 10% is 20 days. The greater of 14 or 20 is 20. Stay under 20 personal-use days and you're a rental property. Hit 21 and you're a residence.
What counts as personal use
The §280A(d)(2) list is broader than most owners realize. Personal use includes any day the property is used by:
- You or a co-owner for personal purposes (family vacation, weekend getaway, working remotely from the property for personal reasons).
- Any family member — spouse, siblings, ancestors, lineal descendants — unless they pay fair market rent. Cousins and in-laws are not family for this test (they can stay without triggering personal-use days as long as the visit isn't a reciprocal arrangement).
- Anyone under a reciprocal use arrangement — "you stay at my Tahoe place, I'll stay at yours."
- Anyone paying less than fair market rent. Below-market means below what Airbnb or VRBO guests pay for a comparable date.
What does NOT count as personal use: days spent principally to repair and maintain the property (§280A(d)(2)). The word "principally" carries weight — a weekend where you painted for 2 hours and hosted family for the rest counts as personal use. Document what you did: photos of the work, receipts for materials, hours logged. If the IRS challenges it, contemporaneous documentation carries more weight than a reconstruction two years later.
Adult children who "borrow" the vacation home for a long weekend three or four times a year without paying market rent will push personal use over the 14-day threshold quickly. Track every family visit.
Three personas, three outcomes
Tim: $850K Blue Ridge cabin. Rents 220 nights. Personal use 10 nights.
Tim bought a cabin in the Blue Ridge Mountains explicitly as an STR investment. He self-manages the listing, hits 220 rental nights per year (average stay 4 nights, well under 7). He and his wife visit the property twice — once in April for a spring weekend, once in October for peak leaf-season — totaling 10 personal-use nights.
10% of 220 is 22. The greater of 14 or 22 is 22. Tim is at 10 personal-use days, well below 22. The property is a pure rental. Tim takes full §168(k) bonus depreciation on the $153,000 bonus-eligible base identified in his DepreciMax report. At 37% federal, his Year-1 tax savings are $56,610 — a full offset of the study cost by 570×. STR loophole applies (subject to material participation).
Sarah: $1.4M Deer Valley condo. Rents 140 nights (ski season). Personal use 15 nights.
Sarah bought a condo in Deer Valley for STR income plus family ski trips. She books it out during peak ski weeks and Christmas week (140 rental nights), and visits for ~15 personal-use nights spread across spring, summer, and shoulder season.
10% of 140 is 14. The greater of 14 or 14 is 14. Sarah is at 15 personal-use days — one day over. The property is a "dwelling unit used as a residence" under §280A. Her rental deductions are capped at rental income; any depreciation that would create a rental loss is disallowed. Cost seg still generates deductions, but they can only offset that year's rental income — not W-2 income, not other passive income. The excess carries forward.
Fix options for Sarah: (1) rent more heavily during peak — 150 fair-rental nights lifts her 10% test to 15, matching her personal use, but 15 would still trip the "greater of" gate at 15 vs 14; she'd need to hit 151+ fair-rental nights. (2) Cut personal use to 14 or fewer. (3) Document repair days that would otherwise be personal-use days.
Mark: $1.8M Cape Cod beach house. Rents 90 nights (summer only). Personal use 45 nights.
Mark bought a beach house that his family uses for the summer plus renting it out during shoulder seasons. Summer family use: 30 nights. Long weekends in September and June: 15 nights. Total personal use: 45 nights. Total fair-rental use: 90 nights.
10% of 90 is 9. The greater of 14 or 9 is 14. Mark is at 45 personal-use days — far above 14. The property is a personal residence for tax purposes. Rental deductions are capped at rental income (90 nights × $650/night = $58,500 gross). Depreciation, mortgage interest, and expenses have to fit inside that cap; the excess carries forward but cannot offset W-2 or other income.
For Mark, cost segregation doesn't help. The Year-1 bonus depreciation deduction that would otherwise be $270,000 (on an 18% bonus-eligible base) is limited to what fits in the rental-income bucket after other expenses. Effectively wasted. His alternatives: (1) reduce personal use dramatically — hard if the property is genuinely a family vacation home — or (2) accept that this is a personal residence with a rental sideline, take standard mortgage interest deduction on Schedule A, and skip cost seg.
How the math changes above the threshold
Above the §280A(d)(1) threshold, the property is a "residence" and IRC §280A(c)(5) caps rental deductions at gross rental income. The mechanics on Schedule E:
- You allocate all expenses (mortgage interest, insurance, utilities, depreciation) between rental use and personal use based on days.
- Rental-use share of directly attributable expenses (advertising, cleaning, guest supplies) is deductible without limit.
- Rental-use share of indirect expenses (mortgage interest, taxes, insurance, depreciation) is deductible only up to the rental income remaining after direct expenses.
- Anything disallowed carries forward to future years.
So bonus depreciation is not "lost" permanently — it's stranded. If you cannot use it against W-2 income under the STR loophole (which requires you to be under §280A), the deduction sits until the property produces enough rental income to absorb it. For a beach house that rents for $58,500 and has $80,000 of expenses before depreciation, all depreciation is disallowed for that year.
To use rental losses against W-2 income, you need: (1) average rental period under 7 days, (2) material participation, AND (3) §280A personal-use compliance. Most STR loophole guides only cover (1) and (2). §280A is the quiet disqualifier.
Buying a mixed-use vacation home?
DepreciMax gives you the Year-1 bonus-eligible dollar amount before you decide whether §280A is a dealbreaker. $99 per property, no subscription.
Run a Property Report — $99 →What to do before you buy a mixed-use property
If you're evaluating a purchase where you plan to use it yourself but also rent it out:
- Forecast rental nights honestly. Off-market rentals in Deer Valley, Park City, and Aspen typically hit 100–150 rental nights. Lake vacation markets (Table Rock, Lake of the Ozarks) run 90–140. If your forecast is 100 nights, your 10% test is 10; the greater of 14 or 10 is 14 — you have 14 days of personal use to play with, not 20.
- Forecast personal use honestly. Adult kids, in-laws' visits, your own weekend getaways. Add them up. If the total is over 14, plan to cut back or restructure.
- If the numbers are close, run cost seg both ways. A DepreciMax report shows the bonus-eligible dollar amount either way. But the deductibility of that number depends on your §280A posture. The break-even changes dramatically above vs below the threshold.
- Consider timing. If you plan personal use in Year 1 but not Year 2, cost seg still makes sense — take bonus in Year 2 when you're clean. Bonus depreciation must be taken in the year the property is placed in service; but the §280A test is per-year, so heavy Year-1 personal use taints Year 1 only.
Documentation to keep
The §280A test is fact-heavy, and the IRS looks at contemporaneous evidence on audit. Keep:
- A day-by-day calendar for the property showing every occupied day and who was there. Airbnb and VRBO booking exports handle rental days automatically. Personal-use days need your own log.
- Receipts for repairs and maintenance tied to specific dates so those days can be excluded from personal use. Photos of the work help.
- Rental rate documentation for any family or friend stay — a screenshot of the Airbnb rate you would have charged the same week, plus proof they paid at least that much.
- The listing history — a screenshot of the property's availability calendar showing all rentable days as "available" (proves it was held for rental use throughout the year).
Frequently asked questions
Can I do cost segregation on a second home I also use personally?
Yes — but only if personal use stays under the greater of 14 days per year OR 10% of the days it was rented at fair market value. Under §280A(d)(1), exceeding either threshold reclassifies the property as a "dwelling unit used as a residence," which caps rental deductions at rental income and disqualifies the property from the short-term rental loophole. Under the threshold, you can take full bonus depreciation the same as a pure investment STR.
What counts as "personal use" under §280A?
Personal use includes any day the property is used by (a) you or a co-owner, (b) any family member — spouse, siblings, ancestors, or lineal descendants — unless they pay fair market rent, (c) anyone under a reciprocal use arrangement, or (d) anyone paying less than fair market rent. Days spent on repairs and maintenance (not enjoyment) do not count as personal use. Documentation matters — keep receipts and a log.
If I use it 20 days, can I still deduct cost seg?
Not the way you can with a pure investment STR. Above the §280A threshold, the property is treated as a residence and rental deductions are limited to rental income — a hard cap. Any depreciation (including cost-seg-accelerated bonus depreciation) that would create a rental loss is disallowed. The disallowed portion carries forward but cannot offset your W-2 income under the STR loophole. Effectively, cost seg is worth the study fee only if the property is a pure STR.
How does §280A interact with the short-term rental (STR) loophole?
The STR loophole (allowing rental losses to offset W-2 income) requires average rental periods under 7 days AND material participation. §280A adds a third gate: personal use must stay under 14 days OR 10% of rental days. Miss any of the three and the loophole doesn't apply. §280A is often the first to trip because vacation-home owners underestimate their personal use days.
Do repair days count against my 14-day limit?
No. IRC §280A(d)(2) specifically excludes days spent principally to repair and maintain the property. But "principally" is fact-specific — a weekend where you painted for two hours and hosted family for the rest counts as personal use, not repair. Document what you did each day: photos of the work, receipts for materials, hours logged.
What if I let my adult child stay for a week and don't charge rent?
That's personal use. Under §280A(d)(2)(A), family members using the property without paying fair market rent count against your personal-use days. Fair market rent means the amount you would charge Airbnb/VRBO guests during that week. If you charge below-market, all days are personal use. If you charge fair market, none are personal use. Document the rate you charged and how you set it.
From one property to your whole search
Run the cost seg numbers before you close
A DepreciMax Property Report gives you the Year-1 bonus-eligible dollar amount for the specific address you're evaluating — so you know whether §280A is a dealbreaker before you write the offer. $99 per property, no subscription.
Run a Property Report — $99 →Statute: IRC §280A — Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc.
IRS guidance: Publication 527 — Residential Rental Property (Including Rental of Vacation Homes), Chapter 5.
Related reading: How to qualify for the STR loophole: 7-day rule · Material participation for STR investors · Is cost seg worth it? Break-even by purchase price.
Verified by the DepreciMax Research Team, 2026-09-26. Nothing in this article is tax advice — consult a licensed CPA for filing-specific guidance.