Final answer:
A taxpayer's home is treated as a rental property for tax purposes if it is used personally for 14 days or less per year. Losses on such property are deductible, but they are subject to passive loss rules, meaning they can only offset passive income.
Step-by-step explanation:
When a taxpayer owns a home that is used personally for 14 days or less in a year, it is treated as a rental property for tax purposes. This scenario implies that the individual doesn't use the home sufficiently to consider it a personal residence, and the primary function is to generate rental income. Therefore, if such a property is rented out to unrelated parties, any loss incurred on the property is considered deductible for tax purposes. However, it's important to note that these losses are subject to the passive loss rules, meaning they can generally only be used to offset passive income.
The distinction between personal use and rental use of property is crucial in determining the tax treatment of income and expenses relating to the property. The rules are in place to restrict the use of real estate loss deductions against ordinary income, thereby serving as a tax planning consideration for individuals with rental properties.