Tax Tips: Deductions For Second Homes

A second home can be a wise investment. It can bring you tax deductions, depending on how it is used. Find out how you can save on your taxes with these tips.

Being a homeowner can mean tax deductions for you year after calendar year. If, for some reason you own two homes, the second one can mean additional tax deductions as well. What you can deduct and how much depends on how your second home is used. That is, is it a rental property? Or, is it a vacation home for your and your family? Or, is it used as both?

If you and your family use the home exclusively for vacations, then you can take a couple of deductions on your income taxes. One, you can claim the amount of mortgage interest you pay. And two, you can also claim the amount of the property taxes you pay on that home.

Mortgage interest can include the money you pay on a loan for your primary residence or your second home. It can also include the mortgage you pay if you get an equity line of credit on your home.

But, what happens to your deductions if your second home is a seasonal abode, such as a beach house, summer cottage, et cetera, and you rent it for fourteen days or less in a calendar year? If you collect rent, then you can receive it without claiming it on your income tax return. And, you can still claim the same deductions because the Internal Revenue Service still considers it to be a vacation home.

Let's say that you decide to rent your second home for longer than fourteen days in a calendar year. The tax rules now change a little bit. The rent you collect must be reported to the Internal Revenue Service (IRS). This amount will be added to your income and taxed as such. However, the good news is, that you'll get another tax deduction because you can claim the interest on a mortgage on that property, if you have one. You can also claim property taxes, insurance, and most, if not all, of the costs you incur by owning the second home. You can also deduct a certain amount for depreciation too.

On the other hand, if you use your second home as a combination vacation home for you and your family, and a rental, then your deductions depend on how much the property is used for each purpose.

No matter how you use your property, the amount of money that you can deduct for expenses cannot exceed the amount you collect for rent. And, if you have deductions, you must itemize them on your income tax return.

In order to be able to take the maximum amount of deductions on your second home, you'll need to keep records of mortgage interest paid, as well as other costs that you incurred. You should also keep receipts, canceled checks, money order stubs, and other proof of payment.

Since the tax laws change all of the time, you'll need to consult a certified accountant or a tax advisor to find out what the laws currently are. These two professionals can also give you advice on how you should invest in your second home.

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