Tax Advantages - Can Second Property Avail Them?
Buying a second property can have several benefits. You can also avail the tax advantages for this kind of property. Although some are hesitant to settle for second properties, the government has granted them tax provisions. However, there are certain rules and regulations in order for you to aim the said exemptions. When you have a vacation or second house, the tax advantages you can get will be according to three major things: how frequent do you rent it out, how frequent do you stay in your vacation house and how long do you leave it vacant.
Basically, if you have your house rented out, and still use it at the same time, there are certain laws and specifications that you need to consider before getting the tax advantages. Take this as an example, if you have your house rented for 14 days in a year and live in it for more than 14 days also, or 10% of the rental days, whichever is higher, your house is said to be a personal residence. If you say personal use, it covers family members living in it or any person who pays lower than the expected market rental rates.
Since it is a personal residence home, it is subject to certain tax exemptions. There is a deduction interest reaching up to one million dollars of the mortgage loan on both private properties and up to an extra one hundred thousand dollars for home equity loans. Taxes for properties are usually deducted regardless of how many homes you may buy.
On the other hand, if you use your home very often for personal use, then it is considered to be a rental property instead of a private residence. If you have it rented more than 14 days a year, and if your personal consumption does not go more than 14 days or 10% of the rental days, whichever is bigger, then your interest, property taxes and operating expenditures are all allotted according to the total number of days the house was used.
When you are buying a second home, the interest for the said property is usually deducted. This goes to any property that has a bathroom, kitchen and bedroom, may it be a house boat or a recreational vehicle. You can still avail the deductions on mortgage interest even if you rent it out part of the year, provided that you spend some time living in it.
Always remember you need to spend at least 14 days at your second home, or more than 10% of the number of days it is rented out. If you haven’t done this, the IRS will try to consider the house a residential property. And that only means there can be a cut in your interest deductions.
Despite being categorized as a “recycled house,” it can still give you the feeling of ultimate relaxation like what a brand new house can give. The government does not discriminate whether it is new or second hand property. As long as it is livable, then it is qualified for tax advantages.