Specific Tax Implications Associated with Purchasing a Vacation Home - Real Estate


Specific Tax Implications Associated with Purchasing a Vacation Home   by Jason Frey

in Real Estate    (submitted 2010-08-06)

The Tax Benefits of Purchasing a Vacation Home in Montana

There is no doubt that the United States is filled with incredible opportunities for purchasing second or vacation homes. Localities such as South Lake Tahoe, Myrtle Beach, Daytona Beach and Asheville are among the most popular and desirable places to retire or visit. However, new information is being brought into the light that could point to substantially better buying, selling and living conditions in Montana.

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Tax Benefits and Tax Laws Associated with Vacation Homes

If you are in the market for a second home, you should be aware of your options as a tax payer. Your second home will be subject to one of a small handful of tax laws, depending on how often you use it or rent it out.

The IRS allows second/vacation home owners to make certain deductions in their taxes from their annual tax return including interest, taxes, casualty losses, maintenance, utilities, insurance and depreciation. The U.S Tax Code allows individuals to deduct up to $1 million in mortgage interest on two homes. The rules are complicated but generally, to qualify as a second home by the IRS you must use the rental home at least 14 days of the tax year or ten percent of the time that it was rented to other people at a fair price.

Other criteria include stipulations regarding how often you or a renter is present on the property. To qualify as a vacation home, the home must be occupied by:

1. You or any other person who has an interest in it.

2. A member of your family or of a family of any other person who has an interest in it, unless the family member uses it as his or her main home and pays a fair rental price;

3. Anyone under an agreement that lets you use some other dwelling unit; or

4. Anyone at less than fair rental price. (Source: Internal Revenue Service, 2010)

Other Incentives to Purchasing a Vacation Home