Vacation Homes – More Than Just Your Toes in the Sand

As we finish the first week of July, having traveled to vacation destinations to celebrate Independence Day, watch fireworks and get away from our daily responsibilities, we may be wondering why we’re supporting someone else’s AirBnB or rental property rather than investing in our own.

A vacation home and an income-producing property are actually two different types of purchases. The first is a second home, purchased for the exclusive enjoyment of the owner(s) and their guests. Cottages, cabins, beach homes and other recreational dwellings are dreams and goals for many, but they sit empty for extended periods of time during which the owner is not using the property. The mortgage, taxes and utilities must still be paid on these properties, so the owner must be comfortable their finances can tolerate the cost of maintaining two homes.

Purchasing a second home has financial considerations in addition to the traditional costs. It likely will not qualify for the same write-offs as the primary dwelling, and the IRS has closed the loophole permitting a second mortgage on a primary residence to purchase an investment property while still deducting the mortgage payments from taxes. To purchase a second home, the purchaser must take out an independent mortgage that allows for tax-deductible interest.

As of 2010, a second home for personal use can be rented for only up to 14 nights without reporting the income. Conversely, a home is considered an investment property if an owner only personally uses it for 14 nights or less, and attempts to rent it for the remainder of the year. Consulting a tax attorney could be a good course of action for anyone interested in purchasing a second home to confirm the intricacies of the recent tax overhauls and potential impacts to the owner.

In addition to the tax implications, other considerations include location and any weather-related costs such as hurricanes or heavy snows, furnishing costs and and maintenance costs. If sole ownership of a second home is overwhelming or not feasible, is a time share or joint ownership an option?

The idea of having time away readily accessible is certainly appealing, but buyers should use caution and consultation with professionals to ensure a second property is truly in their best interest.

 

Header image sourced from Trulia.com.