Vacation Home Depreciation and Expense Allocation

What is the correct method to allocate depreciation expenses of a vacation home between personal use and rental use? The depreciation expense of a vacation home for rental use is calculated as the ratio of rental days to total days of use (rental plus personal days), ensuring the expense reflects the income-earning use of the property.

Calculation Method

The correct method to allocate depreciation expenses of a vacation home between personal use and rental use is to calculate the ratio of rental days to the total days of use. This approach ensures that the depreciation expense accurately reflects the proportion of the property's use that generates rental income.

Example Scenario

For example, let's consider a vacation home that is used for a total of 120 days in a year. Out of these 120 days, 80 days are used for rental purposes, and 40 days are for personal use. To determine the depreciation expense allocated to rental use, we calculate the ratio as follows:

Rental Days / (Rental Days + Personal Use Days)

80 days / (80 days + 40 days)

80 / 120 = 0.6667

Therefore, approximately 66.67% of the home's annual depreciation would be deductible as a rental expense. This calculation method ensures that the depreciation expenses are allocated in a manner that accurately reflects the rental income-earning use of the vacation home.

← Cost of debt calculation for honeywell Understanding income recognition for tax purposes →

More Posts: