Karen and Andy own a beach house. They have an agreement with a rental agent to rent it up to 200 days per year. For the past three years, the agent has been successful in renting it for 200 days. Karen and Andy use the beach house for one week during the summer and one week during Thanksgiving. Their daughter, Sarah, a college Student, has asked if she and some friends can use the beach house for the week of spring break. Advise Karen and Andy on how they should respond, and identify any relevant tax issues.

The total number of days that Karen and Andy can use the beach house for personal use = 200 rental days x 10% = 20 days. If they exceed this limit, then they will not be able to deduct any rental losses from their income.

It is important to determine if Karen And Andy expect a rental loss or not. If they expect to lose money, then they should tell their daughter to use the beach house only for 6 days, not 7. Or they could use it only 13 days during the rest of the year. The important issue is that the total number of days for personal use doesn't exceed 10% of the rental days.