Just make sure you don’t use it for client or business entertainment.  

The Bradford Tax Institute had a great piece about how you can actually deduct your vacation home – as long as you don’t break the rule.  The rule is – it can’t be used for your business client’s (or their family’s) entertainment.

BTI used the scenario – Man owns three-acre beachfront property.  While he is there, he met with his investment advisors, current and prospective clients and met with salesmen, trainees and other partners in his business.

The costs associated with these meetings are all legitimate deductions and valid business activities, so where did he go wrong?

He permitted his clients to bring their family to the property, while they were in meetings. The court ruled that since the *family members* did not attend the business meetings – that meant they were entertaining themselves, such as playing on the beach or going out at night and partying.

As a result, the court ruled that the beach home was a NONDEDUCTIBLE ENTERTAINMENT FACILITY.  (See http://www.law.cornell.edu/uscode/text/26/274 )

The Bradford Tax Institute used the following example:  If you use your vacation home 11 days for business meetings with your employees (or partners, etc.), 14 days for business lodging, and 8 days for personal purposes, that gives you 76% business use and 24% personal use.  Formula:  25 business days (M-F) divided by 33 days = 76%.  You can deduct 76% of the operating costs and depreciation of your vacation home.

Story source:  Bradford Tax Institute Tax Reduction Letter