Final answer:
Expenses of a vacation home allocated to rental use are generally deductible for AGI; however, they must be prorated if the property is also used for personal purposes and are subject to various tax laws and limitations.
Step-by-step explanation:
The question relates to whether expenses of a vacation home allocated to rental use are deductible for Adjusted Gross Income (AGI). In general, you may deduct expenses associated with renting a property, such as mortgage interest, property taxes, advertising expenses, insurance, utilities, and repair costs, prorated for the portion of the year the property was rented. However, the treatment of these expenses on your tax return can be complex and may be subject to rules regarding personal use versus rental use, passive activity losses, and limitations under the Tax Cuts and Jobs Act.
It's important to note that if you use the property for personal use and rental use, you'll need to prorate expenses based on the number of days used for each purpose. Strict record-keeping is necessary to differentiate personal use from rental use. In some situations, limitations may apply, and some expenses may not be fully deductible in the current tax year but could be carried forward.
For detailed guidance, it's best to consult a tax professional or refer to IRS Publication 527, "Residential Rental Property", which provides comprehensive details on tax treatment for residential rental properties.