There are tax benefits to owning a second home. With the decline of real estate sales during the recession, the federal government continues to uphold breaks for those who can afford to purchase a second home. There are several ways to benefit from such ownership.
First of all, you only have to prove that you will stay in your second home for fourteen days a year. The second home needs all the working amenities of your primary residence like a fully functioning kitchen and plumbing throughout. For tax reasons, your second home will be termed your “vacation home”, while your first home is your primary residence. The owner can rent out vacation homes for periods of the year, as long as certain conditions are met.
If you rent the house, do not do so for the entire year, as it will then fall into the category of a rental property and you will lose the “vacation home” tax breaks. Be absolutely certain to stay at this home no fewer than fourteen days a year, to maintain its tax status. Otherwise, rent it out, if you wish.
There are several tax benefits the Internal Revenue Service allows for such homes. Mortgage interest on your vacation home is tax-free. So, it is a complete credit when filing your income tax returns. Mortgage interest can amount to a hefty sum of money, so this is a great incentive to those considering the purchase of a vacation home. Use the savings any way that makes sense, like up keep of the property or payment of utility bills for this home.
Your second home also comes with an Internal Revenue Service tax break on the payment of mortgage insurance. Maintenance and home improvement costs on your vacation home earn tax incentives, as well. Any taxes you paid in settlement on the vacation home property will earn you deductions on your income tax return. You can also depreciate the value of the property when using it as a rental unit for part of the year. Just be certain that the depreciation amount never exceeds the total revenue you earn from renting your vacation property.
Before purchasing your vacation home, make sure that you are fully aware of all the tax benefits that come with such an investment. Be certain, as well, that you familiarize yourself with all applicable restrictions and qualifiers you will need to observe to reap the tax liability benefits of owning a second home.