26 U.S.C. § 280A — Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc.

(a) General rule: Unless another part of this section says otherwise, a person or S corporation can't deduct expenses for using a home they also live in as a residence during the year. (b) This ban doesn't apply to deductions you could take anyway, regardless of business use — like mortgage interest, property taxes, or casualty losses. (c) Exceptions for business or rental use, with limits: (1) The ban doesn't apply to the part of the home used regularly and only for: your main place of business; meeting clients, patients, or customers as part of your normal business; or (if it's a separate building not attached to the home) any business use. If you're an employee, this only counts if the exclusive use is for your employer's convenience. "Main place of business" also includes a home office used for administrative or management work, if there's no other fixed location where you handle those tasks. (2) The ban doesn't apply to space used regularly to store inventory or product samples for a retail or wholesale business — but only if the home is the only fixed location for that business. (3) The ban doesn't apply to the part of the home that's rented out (subject to the day-counting rules in subsection (e)). (4) Day care: The ban doesn't apply to space used regularly for a day care business serving children, people 65 or older, or people who can't care for themselves — but only if the business has applied for, has, or is exempt from needing a required state license or certification. This rule only applies starting a bit more than 90 days after a 1977 tax law took effect. If the day care space isn't used exclusively for day care, the deductible amount is limited based on the ratio of hours actually used for day care to hours the space was available for any use. (5) Deduction limit: For business, storage, or day-care use (or rental use where the home is also your residence), your deductions from that use can't exceed your income from that use, minus certain other deductions already allowed for the space and for the rest of the business or rental activity. Any excess amount you can't deduct this year carries forward to next year, subject to the same limit then. (6) If you rent part of your home to your own employer while working there as an employee, exceptions (1) and (3) above don't apply — normal rules apply instead. (d) When you're considered to "use" the home as a residence: (1) You're using it as a residence if your personal use exceeds the greater of 14 days, or 10% of the days it was rented at fair market rent that year (days used personally don't count toward the rental-day count). (2) "Personal use" includes use by you, anyone else with an ownership interest, or family members of either; use by someone under a swap arrangement that lets you use another property; or use by nearly anyone else unless they're paying a fair market rent that day. The Treasury can write rules about when doing repairs and maintenance doesn't count as personal use. (3) Renting to a family member as their main home: Renting at fair market rent to someone for their main home isn't counted as personal use — unless that renter also owns a share of the property, in which case the rental must follow a "shared equity financing agreement," with fair rent determined when the agreement is signed based on the renter's ownership share. That kind of agreement is one where two or more people own shares in a home, and the person living there pays rent to the other owners. A "qualified ownership interest" means owning an undivided share of the home and land for more than 50 years. (4) Renting your main home: If you rent out your main home for a set stretch of time (12+ months, or a shorter period ending in a sale) at fair rent, days outside that period don't count as personal use for that stretch, as long as the home was your main home under the normal tax-law meaning of that term. (e) Expenses for rental use: If you use the home personally on any day of the year, your deduction for rental-related expenses is limited proportionally — based on how many days it was actually rented at fair rent versus the total days it was used for anything. This limit doesn't apply to deductions you'd get regardless of whether it was rented. (f) Definitions and special rules: (1) "Dwelling unit" includes a house, apartment, condo, mobile home, boat, or similar property, plus anything attached to it — but not the part of a property used purely as a hotel, motel, inn, or similar business. (2) For S corporations, the personal-use rules in (d)(2) apply to any shareholder, not just "the taxpayer." (3) If this section's general ban applies to a home, a different law about hobby losses doesn't apply to it that year, but that year still counts toward that other law's 5-year presumption rule. (4) Nothing here blocks deductions you're otherwise allowed for business travel away from home, other than for a business of renting out dwellings. (g) Special rule for short rentals: If you use a home as a residence and rent it out for fewer than 15 days a year, you can't deduct any expenses from that rental — but you also don't have to report the rental income at all.