.
I ran across this excellent article by Lew Sichelman on tax benefits for second homes and how the laws have changed regarding those homes. The article touches on topics such as primary home vs vacation homes, tax benefits of renting out your vacation home, a vacation home that you rent out but still use personally, and vacation home write off expenses.
Here’s an excerpt:
Primary Home vs. Vacation Home
Obviously, if and when your vacation property becomes your primary residence, you are entitled to all the benefits ownership entails. You can write off the interest paid on your mortgage and your property taxes, and you can add the cost of any improvements you make to your basis, or cost.Moreover, after you’ve lived in your holiday house as your main home for two years, you can exclude up to $500,000-$250,000 for single taxpayers-from the capital gains tax when you sell the place.
If your vacation house is not your primary residence, mortgage interest and property taxes still can be written off, and you still can add the cost of improvements to your basis. But since the capital gains exclusion is limited to your main home, that benefit is not available when you sell.
Some people used to skirt around that limitation by selling their primary residence and moving into the second home. After living full-time in the former vacation for two or more years, they then could sell the place and qualify for the entire capital gains exclusion.
As of Jan 1, 2009, though, the tax law differentiates between the amount of time the house was used as a vacation home or rental property and the period it was used as a principal residence.
The rules do not apply to vacation homes purchased before Dec. 31, 2008. But after that, the rules distinguish between “non-qualified” periods of rental use and “qualified” use” as a principal residence. The minimum period necessary to qualify as a principal residence – two years out of the five years preceding the sale – still applies, but now you’ll have to allocate any gain between periods of qualified and non-qualified uses.
Again, this is complicated stuff, so be certain to consult with a tax professional. Meanwhile, let’s move on the tax benefits of renting your vacation property.
A lot of great info on this article. To read the rest, go here: Second Home Buying –
Practical Tips and Articles for Buying a Second Home
THINK OF ME, LYNN RICHARDSON, FOR ALL OF YOUR LAKE TAHOE AND TRUCKEE REAL ESTATE NEEDS!
YOUR FRIEND IN HIGH PLACES 
Leave a Reply