16 August 2010
Some of the Tax Advantages of Owning a Second Home
Posted by admin under: Tax advantages of owning a vacation home .
If you own a second home or are thinking about buying one, they can in fact provide you with tax benefits.
First you will need to determine how you plan to use the property and then determine if will fit in with Internal Revenue Service (IRS) regulations.
For example.
If you live in your vacation home for at least a portion of the year, it will fall into the residence category, but if you rent it to others for the entire year, it will be looked on as an investment or rental property instead.
Some stipulations:
Many properties—such as a condominium, cabin, duplex, detached house, recreational vehicle, or even a boat—can qualify as a tax deduction. (The law states that they must have a kitchen, a bathroom, and a sleeping area.)
Also, IRS regulations stipulate that your vacation home will qualify as a residence if you spend 10% of the rental period on the premises, or a minimum of 14 days annually.
By way or contrast, if you rent your second home for less than 14 days, the income from the rental does not have to be reported on your tax return, and it is tax free.
However, if you rent the property for a longer period, the rental income must be reported, but allowable tax deductions can also apply.
However, IRS rules will not allow you to claim a loss on a second home, and the best you can hope to do is to break even.
Your income plays a role:
If your expenses exceed your income on a rental property, you can offset the loss with passive income.
If your yearly income is below $100,000, you can claim as much as $25,000 in losses.
If your income is higher, the amount of the allowable loss is less, and if your income reaches $150,000, it is totally eliminated.
Over a number of years, you may also be able to deduction depreciation on your second home’s value, which reflects wear and tear on both the home and contents, rather than land value.
Before buying a vacation home, you absolutely should consult with your accountant to discuss how IRS regulations and tax advantages will apply in your particular situation.
Article Courtesy of Gary Smith
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