Now is the time to buy a second home. With home prices declining, you can get the most economical deals. But wait, there’s more. Aside from the prices, you can reap tax benefits when embarking on a second home.
Tax benefits on your second home depend mainly on how you use the property. Different rules apply for personal use, for rental use and for selling. To find out the effects, read on…
Second Home for Personal Use
People buy second homes to use them as vacation homes. Or it can be used for traveling as in the case of a motor home or a boat. If you use the property for these purposes, your tax benefits fall mainly on your deductible. Here are some of them:
• Interest from Mortgage- If you purchased your second home through mortgage, about 100% of their value can be deducted in a home acquisition debt that amounts to 1.1 million.
• Property Taxes- Any property tax is deductible no matter how many homes you plan to buy.
• Points- They are deductible over the mortgage’s term.
• Casualty Losses and Theft
Second Home for Rental Purposes
Some people may obtain a second home for investment purposes. One activity they engage in is Rental business. Tax benefits for rentals have different effects depending on the number of days it has been used for such purpose. To understand more about it, here are the effects:
• House is rented for less than 14 days in a year: In this case, any income obtained within that period will become tax-free. It will not matter how much money you earned within those days, it can still go right into your pocket without being taxed. In addition, the same deductibles apply like when you use it as plain second residence. However, no operating expense can be deducted.
• House is rented for more than 14 days in year: The income is no longer tax-free. However, any expenses incurred in operations will be deductible (i.e. repairs and maintenance, improvements, advertisements and more). If in a year, it was used for both personal and business purposes, the expenses shall be pro-rated. Only the ones incurred for rental will be applicable as a deductible.
• If house qualified as a rental property: If personal use is limited to 14 days, the property becomes qualified for rental business. 25,000 dollars worth of losses will subjected to tax exemption but the adjusted gross income (AGI) should be less than 100,000 and given if you are an active investor. If the AGI falls between 100,000-150,000 dollars, the loss will not be a deductible but can be applied once the property is sold.
Selling Second Homes
If you want to sell the property with a profit that is tax-free, you must make it your main home for at least 2 years prior to selling. However, there are changes to the ruling after 2008. A portion of the capital gains will be taxed based on the number of years used as main home and the total number of years owned.
Are you looking for the best second homes in Arizona? Visit these sites Cave Creek Golf Real Estate and Pine Properties for Sale.
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