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Is your second home just an investment for your retirement? If your answer is yes, then think over again. Your vacation home can be a condominium, apartment, standalone bungalow, studio or duplex. If it has a distinct kitchen, sleeping area and bathroom, then it becomes eligible for a number of tax advantages that will help you to save your hard-earned money as well as build up your equity. Let’s take a look at some of the tax advantages that a vacation home can give.

Some usual tax benefits

Some tax benefits that are applicable on your first home are also valid for your retirement home. For instance, if you have taken a home mortgage to buy your second home, then you can claim tax deduction on the monthly payments you make to pay off your debt. Likewise, to ensure the safety of your new home, you must have taken an idyllic homeowners insurance policy. You can get tax benefits on the premiums of the insurance policy. Yet another area where tax deductions can be claimed is property taxes. These are some standard tax advantages that you get on buying your second home.

Rental income and tax benefits

Under normal circumstances, you won’t be living in your second home. If you rent out your unused premises, you can open a new source of income. In addition to getting regular rental income, you can also claim a number of tax deductions. There are three different scenarios of getting tax benefits.

You use more and rent out seldom- If you live in your second home and rent it out occasionally, that too for less than 15-days, then your will not get any tax benefits associated with rental. You don’t have to report your rental income in your annual income tax statement.

You use less and rent out regularly- In the second instance, you use your vacation home for less than 15-days in a year. For the remaining time period, tenants use your home. In such a case, you would have to declare your rental income in your tax statement. However, you become eligible for several tax benefits. Like, you can claim deductions on any repair work or alterations you undertake. You also get tax benefits on the rectification of damages caused by natural disasters as fire, earthquake, hurricane, tornado, etc. With time the value of the rental property depreciates; you can deduct the annual depreciation too. Another area where massive tax deductions can be applied is rental property management.

If your rental income is profitable, then you can deduct all the expenses pertaining to the management of rental property from the profit. However, if your rental property is not that profitable, then passive activity rule becomes applicable. According to this rule, if your rental income falls short of $100,000, then you claim a loss of at least $25,000. Things change slightly when your rental income is more than $100,000. In this scenario, the rental loss will continue to decrease until the rental income reaches the $150,000 mark. Thereafter, the rental loss won’t be considered.

You use some and rent out the rest- If you live in one half of your second home and the remaining half you have given on rent, then too you qualify for tax benefits. In this instance, you would have to report your rental income.

In nutshell, your second home is not just another lifeless property; it is a unique equity-building vehicle that helps you garner money easily and quickly.