Homeowner Guides

Tax Deductions for Second Home

Rental Home Tax Deductions

Today’s article is a guest post from MortgageWiki.org.

Tax Deductions for a Second Home

Have you recently purchased a second home and are unsure about how to add this information to your tax return? Investing in additional property, whether it is for residential or vacation purposes, is an excellent idea for families who travel frequently. And this information must always be added to your annual tax return.

A good tax advisor can help take the guesswork out of filing your state and federal income tax return by helping you complete and file your taxes online. Tax prep software such as Intuit Quickbooks and Quicken offer a simple, user-friendly interface that guides you through the entire process.

Filing Taxes After Selling Your Second Home

If you’ve sold your vacation home within the last tax year, the IRS states that you’re allowed to take up to a $750,000 profit if you’re single or married jointly. And if you’re married and filing separately, the deduction limit is $500,000. [1]

This exclusion, however, does not apply if you choose to sell your second home. When you sell property that is not considered to be your primary residence, you could end up paying the capital gains tax. However, if you make your second home your primary place of residence for at least 2 years before it is sold, you may be able to gain some tax benefits.

Homeowner Deductions for 2nd Home

As a homeowner, you may look forward to using your second home for investment purposes, property value, or family income. How you use your second home is up to you – however, your decision will have an impact on your second-home tax deductions.

The majority of the tax rules stay the same with a few exceptions, such as being able to claim a home office tax deduction. However, if you are planning on renting your home out to others, the 2nd-home tax deduction rules can be much more complex and difficult for many consumers to understand.

If your second home is on for personal use, you’ll need to deduct the mortgage interest rate the exact same way that you would for your primary home.

Tax Deduction for Rental Homes

If you use your second home for rental purposes, you are allowed to rent it out for up to 14-days each year without having to report the income to the IRS. [2]

The price that you rent it for each night or for the 14-day duration is not a factor as long as the property was not rented out longer than 14 days. If you rent your home out for 15 days or more, the property is considered to be a rental property and you will have to look into how to include vacation home tax deductions.

Is Homeowners Insurance Tax-Deductible?

If your home is considered to be a rental property, then you will need to report all income that you have obtained from it to the IRS. You will be able to deduct rental expenses for: [3]

You can also deduct money spent advertising your rental home and homeowners insurance.

If you rent out your second home and stayed there yourself several times throughout the year, you will also need to figure out how much time the property was used as a rental home and how much time it was used as personal property.

Rental Days vs. Personal Days

If you use your second home for more than 10 days or 10-percent of the number of days it was rented out (whichever is greater), the property will be considered a personal residence. This means that your rental loss cannot count as a deduction on your income tax return.

If a relative uses the home (including grandparents, spouses, siblings, children, parents, or grandchildren), those days are considered personal days and not rental days, unless you are collecting a reasonable rental fee from them during their stay.

This can be a confusing process so it’s best to seek advice from a tax attorney or property advisor.

Disclosure: The info provided above is intended to be a broad overview. Everyone’s situation is different, and it’s recommended that you seek advice from your tax attorney or tax consultant.


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