Vacation Home Tax Introduction
According to the Internal Revenue Service, a vacation home permanently places. This includes a lake home, condo, mobile home, RV, house trailer or a yacht. The home has to offer sleeping, cooking and toilet facilities. It is not required to be fancy, or the location does not have to be in a vacation community. The main thing is it is a structure, land by itself does not count. This paper will discuss the tax information that can be used when filing an annual tax return .
As long as the vacation home meets requirements, the interest on the mortgage can be deducted. This means that some people will two mortgage interest deductions, one for the primary residence and the second for the vacation home. The total amount of liability that can be used for the home mortgage interest deduction for the main home and second home cannot be more than $1 million. If they file married filing separately, the amount of is $500,000 .
Property and Real Estate Taxes
Local and state real estate taxes that are paid on a second or vacation home are deductible. Also, personal property taxes on the value of personal property at the vacation home are deductible. This also includes taxes due on a yacht. Most states allow personal property taxes on cars or boats. It also can include recreational vehicles like snowmobiles, ATVs, and jet skis. The registration fees for these items are not deductible .
Expenses
Home improvement costs can be deductible if the vacation home is rented by other people. In order to obtain these deductions, the vacation home must not be used by the owner for at least 14 days of the number of days rented . Now if this is the route that will be taken, the mortgage interest deduction is not taken on the Schedule. The information would be put on a Schedule E for rental income and expenses. These expenses can include mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance, and depreciation. These expenses will lessen the rental income . If rental expenses come out to be more than the gross rental income, then it is a loss. The owner must remember to rent the vacation home for less than 15 days for the entire year in order to take the deductions.
Selling the Vacation Home
When the vacation home is sold, the owner will be subjected to capital gains tax. The only way not to pay this tax, the owner will need to make the vacation home their primary living residence. There is a catch; the owner must live in the home as their residence for at least two of the five years before it is sold. The years do not have to be consecutive. Only one home at a time can be sold. If the housing market declines and there is a loss on the living residence, a loss will not be able to be deducted. Now if the loss is on the investment, which is the vacation home, a loss can possible be claimed as a deduction .
Conclusion
There are many deductions that can be taken off of purchasing a vacation home. The owner needs to make sure that they keep up with all expenses and have the written documentation to prove the deductions. The important point to remember is to research the tax laws before investing in the vacation home, especially if it is to be written off at the end of the tax year.
