If you’ve dreamed about owning a get-a-way in the mountains or at the beach, or run over your garden hose with the lawnmower while imagining yourself on the deck of your vacation home watching the sunset over the lake, it might be time for a second home.
While the idea can sound daunting, the truth is buying a second home can be a sound investment and save money on your taxes — not to mention replacement garden hoses. There are several ways your vacation property can be a financial asset, so let’s look at how to make your dream vacation home a reality.
Deductible Mortgage & Tax Savings
If you don’t rent out your second home, 100 percent of your mortgage interest is deductible. You can also deduct your property taxes. Many people, however, rent out their vacation homes, counting on the rental income to help them pay the mortgage. If you rent your second home for fourteen or less days a year, you can keep the rent and not pay taxes on it. You can charge as much as you like and, as long as the property is rented for no more than fourteen days, it is considered as your residence.
Even if you rent your vacation home for five or six months and use it yourself for a month, you can deduct a pro-rated amount of the mortgage, taxes, insurance premiums and other expenses of rental properties. You can also deduct the depreciation of your home for the part of the year it is rented.
Keep Documentation
If you want to claim all the deductions for the rental income you have to limit your personal use to fourteen days or less, but you can spend time at your second home maintaining it and that time does not count as personal use. So, if you take the kids to the beach, you might mow the lawn and fix the porch swing. The important thing is to document the time you spend in “fix-ups” and save receipts of money you spend on paint or gas for the mower.
And if you plan to sell your second home in the future, move into it two years in advance. Then it becomes your primary residence and you save on the expenses of selling and pay less tax on the profit. Second homes can become great assets and smart ways to invest disposable income. Learning to maximize your deductions can make that dream home even sweeter!
If you’re looking at buying a second home, our award winning real-estate agents are here to help. Give us a call or drop us a line today!