The IRS, your lender, and your insurer each classify the property differently. The tests, the 2026 thresholds, and Oregon's rules for renting, each traced to the statute.
The IRS, your lender, and your insurer each classify a Central Oregon property as a second home or an investment property, and the three definitions do not line up. Getting the classification wrong costs money at tax time or at closing. This guide gives the tests, the 2026 thresholds, and the Oregon rules that apply to renting, with every figure traced to the statute or the agency.
The IRS test: personal use days
Under Internal Revenue Code section 280A, a property is treated as a residence you use personally if your personal use exceeds the greater of 14 days or 10% of the days it is rented at fair market value during the year. Rent a Sunriver house for 150 days and use it yourself for 16, and it is a residence, because 16 exceeds 15. Use it for 14 or fewer days and less than 10% of the rental days, and it is a rental property for tax purposes. The distinction decides whether rental losses can offset other income and how expenses are split.
One quirk in the same section: if you rent the home for fewer than 15 days in the year, the rent is not reported as income at all, and no rental expenses are deducted. Owners who rent a Bend house for two weeks during a festival use it every year.
What a rental property can deduct
A rental property deducts mortgage interest, property tax, insurance, management, repairs, and depreciation against rental income. Residential rental property depreciates over 27.5 years under section 168. When expenses exceed income, the loss is passive, and section 469 allows up to $25,000 of passive rental losses to offset other income for an owner who actively participates, with the allowance reduced by half of adjusted gross income above $100,000, which phases it out entirely at $150,000. Above that, losses carry forward until the property produces income or is sold.
What a second home can deduct
A second home you do not rent, or rent within the residence test, is treated like your primary home for the mortgage interest deduction: interest on up to $750,000 of combined acquisition debt across both homes, a limit the 2025 federal tax law made permanent. Property tax on a second home counts toward the state and local tax deduction, which for tax year 2026 is capped at $40,400, or $20,200 married filing separately, with the cap phasing down for modified adjusted gross income above $505,000 to a floor of $10,000, per the IRS. Both deductions matter only if you itemize, and for 2026 the standard deduction is $32,200 for a married couple filing jointly and $16,100 for a single filer.
Selling: the 1031 exchange
An investment property can be sold and replaced with another through a section 1031 exchange, deferring the capital gain. The replacement must be identified within 45 days of the sale and acquired within 180 days. A vacation home qualifies under the IRS safe harbor in Revenue Procedure 2008-16 if, for each of the two years before the exchange, you owned it, rented it at fair market value for at least 14 days, and kept personal use at or under the greater of 14 days or 10% of the rental days. A second home used only by the family does not qualify.
Lenders and insurers use their own definitions
A lender prices a second home and an investment property differently and asks different questions: whether you will occupy it part of the year, whether it will be rented, and whether rental income is needed to qualify. State your intent accurately on the application. Claiming a second home to get better terms and then renting it full time is occupancy fraud. Insurers likewise write different policies for an owner-occupied second home, a long-term rental, and a short-term rental, and a claim on the wrong policy can be denied. Tell the carrier how the home will be used.
Oregon rules if you rent it
A long-term rental in Oregon is subject to the state rent cap under ORS 90.323. For 2026 the maximum annual increase is 9.5%, per the state's Office of Economic Analysis, and a home whose first certificate of occupancy was issued less than 15 years before the increase notice is exempt. A short-term rental in Bend or Deschutes County needs a permit and is subject to local caps and rules, covered in our vacation rental guide. Both change the math on whether a property is a second home or a business.
Questions
When does the IRS treat my vacation home as a rental?
When your personal use is 14 days or fewer and less than 10% of the days it is rented at fair market value, under section 280A. Exceed either and it is a residence for tax purposes.
Can I deduct rental losses against my salary?
Up to $25,000 a year if you actively participate, under section 469, reduced by half of adjusted gross income above $100,000 and gone at $150,000. Above that, losses carry forward.
What is the SALT cap for 2026?
$40,400, or $20,200 married filing separately, phasing down above $505,000 of modified adjusted gross income to a $10,000 floor, per the IRS. Property tax on a second home counts toward it.
Can I do a 1031 exchange on a vacation home?
Yes, within the IRS safe harbor: two years of ownership before the exchange, rented at fair market value at least 14 days in each of those years, with personal use at or under the greater of 14 days or 10% of rental days. The replacement is identified within 45 days and closed within 180.
Does Oregon's rent cap apply to my rental?
Yes for long-term tenancies, at a maximum increase of 9.5% for 2026 under ORS 90.323, unless the home's first certificate of occupancy is less than 15 years old.
Next step
The tax classification is your accountant's call and the property is ours. Get listing alerts for the resort and rental markets, or book a call and we will walk the numbers on a specific house with your tax preparer on the line.
Matt RyanOwner & Principal Broker at Ryan Realty.
