Did you know that there are benefits that come with owning a second home – including tax deductions? We spoke to our real estate expert of more than 20 years Deb Sarsany of the Deb Sarsany Team at The Real Estate Group to find out more.
As well as having another place to call home, somewhere to unwind on the weekends, or vacation – owning a second property will provide you with a number of tax breaks.
When it comes to owning a second home, the interest on your mortgage is deductible – the rules that apply to your first home also apply to your second.
You can even write off the money you spend improving your second property. There is a limit though on the amount you can deduct if the home equity loan on your first or second home is more than $50,000 if filing as a single person or $100,000 if married or filing jointly. Also, the amount you can deduct has a limit if the mortgage is more than the fair market value of the home.
You can also deduct your home’s property taxes and – unlike the mortgage interest tax deduction – there’s no dollar limit on the amount of real estate taxes that can be deducted on any number of homes owned by the taxpayer.
If you rent out your second home for 14 days or less, over the course of a year, that rental income is tax-free. However, if you rent your home out via the likes of Airbnb for longer than the two-week allowance you’ll need to work out the number of days you rent your home and divide that by the total number of days your home was used – whether the home was used by you or a tenant.
You need to make sure that you clearly distinguish between your primary residence and your second home because this can have huge tax implications when it comes to selling. Your primary residence is defined as the home you used most during the last five years. There are other factors to consider- voter registration address, for example.
Among other requirements, you must own and use that principal residence for at least two of the five years before the home is sold. It’s also always best to check with your financial advisor or accountant to make sure a second home/vacation home is right for you.
If you have any questions contact the Deb Sarsany Team at The Real Estate Group on (217) 313-0580 or visit the Facebook page facebook.com/debsarsanyteam