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.

We’ll help you determine that; and it would be wise to consult with your tax accountant as well. There are rules that apply to living in the primary residence and sometimes people prefer to live in the second home and rent out the original. Yes, there are a number of questions, but the answers may be easier than you think. Interest is usually less on the home you use as your primary residence, so tell us which home you’ll spend the most time in.

The bottom line is that you’ll want to go with the least expensive loan option. Should you use your existing equity, or should you borrow the entire amount for the second house? Many buyers think only in terms of building equity where they already have it, but you definitely want to look at the situation from all angles. It often makes more sense to borrow against the primary residence and take advantage of that equity.

This type of mortgage is called a cash-out refinance. It’s best used when there is quite a bit of equity built up in the home. You borrow more than the current loan, pay off the house, and use the balance as a down payment on the second home. If you’re in the most optimum position, you may be able to buy it outright. If your goal is to live in the newer home, but you don’t want to be penalized tax-wise, it sometimes works to stay in the original home for a year or so because technically it’s the primary residence.

At the end of the year, if you don’t have to refinance, you can move into the second home and rent out the first. The second home becomes the primary residence and you aren’t charged investment property taxes. Before you sign on for something like this, we’ll sit down with you and your tax advisor to make sure all your ducks are in a row.

We have the knowledge and experience to help you with your multiple home mortgage needs. Our business is to work with you to determine your most profitable course of action.

1. Sound Investment:

Sure, the market bumps along: up a little, down a little, but in the long run it always appreciates. As cities become more and more crowded, beautiful homes in bucolic settings will become increasingly rare – and valuable.

2. Retirement

A second home purchase can be part of a sound retirement strategy. When home buyers purchase a home in an idyllic spot of their choice, they can utilize the property for their own pleasure during their working lives or as an additional income generator. When it comes time to retire, they have the option to kick off their shoes and permanently relocate to their second home or even sell it and upgrade to another home in the same town.

3. Vacation Rental

Pick a home you love and others will love it too. Mountain homes, golf homes, waterfront, deep forest, wildlife retreat…these are the places we all need to escape to when too many days of crowded subways and dusty traffic jams are getting us down. When you own a home in an out-of-the-way spot, you open up the possiblility of renting it out to others and paying down the mortgage at the same time.

4. Fun Times

It’s only natural…perhaps the best way to use a second property is recreationally. If you love to ski, a home in the mountains can be just the thing. Miss the fresh air? Less cars and more trees are just the thing. Even when you love where you are, being able to get away for a while makes it so much sweeter.

5. Live in your Vacation Home and Rent out your City Home!

Just looking for change? Why not swap your life in the city for a life by the lake? Technology has made it possible for many of us to work wherever we want, why not take advantage of it and live where you want? A move to a less populated area doesn’t have to be costly and it doesn’t have to be forever. Instead of renting out your vacation home and living in the city, you can do the reverse. One of the main benefits of this strategy is that urban homes are easier to rent out no matter what time of year it is. That, and you can feel like you’re on vacation everyday.

Where to, Brave Traveler?

How far are you willing to go? America is full of beautiful undiscovered towns and vacation get aways. Forget about expensive florida beaches and the like. Americans these days are looking for wilderness…and bargains. There are plenty of US towns you may never have considered that offer lots of get up and go.