There’s nothing like a vacation to recharge your mental and physical state of being. Owning a second home, an excellent opportunity to vacation at a moment’s notice, is something you should consider for all the financial benefits it offers.
Whether you prefer a house in the famed Hamptons or a condo in the midst of all the cultural activities of New York City, you can benefit financially in more ways than one.
The first consideration is the new tax deductions that owning a second home allows. For most people, their home is their biggest tax break. What most homeowners don’t realize that owning a second home qualifies for many of the tax breaks they are getting from their primary home. Spending just fourteen days a year in your second home qualifies will allow you to deduct the mortgage interest on both of your homes. The allowance for this deduction is a combined total of one million dollars. Basically you are able to write off all of the interest payments up to that one million dollar allowance. Then there are the property taxes. As a homeowner of a second home you are able to write off your property taxes in the very same way you do for your primary home.
A second home is also an opportunity to gain an additional source of income. Owning a second home in a highly desirable location will enable you as the homeowner to rent the property out when you are not there, often garnering an amount where the property pays for itself. And when it comes to tax breaks, contrary to what most people believe, you will not have to take a loss. Consulting with your tax professional you will be able to keep apprised of the specific rules the IRS has regarding this. You will benefit if you remember to rent out the property for under fifteen days a year. This way you will not have to report the rental income. However, if you do rent the property for more than fifteen days a year you will have to report the rental income but will also be able to deduct rental related expenses on your taxes. The interest on income and related costs becomes a business expense and, most beneficially, the interest becomes a standard personal deduction towards the time you are living in your second home. As you do with other financial matters, it’s an ideal decision to work with your accountant or financial adviser when you own a second home.
Your second home becomes a solid investment as over time the value will increase. As you watch your second home appreciate with time, as you pay down the cost of its purchase, you are building equity. You might also be interested in considering making your second home your primary residence in retirement. If so, consider that selling your primary home might net you enough profit to pay off your second home. Or perhaps you might make your second home your primary residence, renting out your first home to earn a sizable profit.
If you are considering purchasing a second home, whether for vacation or profit, take the first step by speaking to a real estate professional who can assess your needs and ensure that the home you choose is the smartest choice for you.
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