What do you stand to gain by buying a second home?
Buying a second home is cost intensive, so you need to know how to reduce the cost by learning how you can reduce your taxes on such homes. You can learn what the various tax deductibles you can benefit from as you purchase your home.
Mortgage interest:
If you are using any form of finances to buy your second home, you are a candidate for a tax deduction benefit. Mortgage tax allowances are given to a buyer that resides in his second home. That is the house serves as residential home for him. You can claim up to 100% mortgage interest as tax deduction. However if you rent it out you can’t deduct the mortgage interest from the rental income. But if you use the house for at least 14-21 days in a year, the house is regarded as a residential home
Maintenance cost:
When you limit your personal use of your second home to 14 days, the home is considered as a rental house for business, you can claim maintenance cost up to $25000. This can be exempted from tax. And the fix up days is not counted for personal use. However, holding down personal use would mean you won’t have the right to deduct or you will forfeit part of mortgage interest that fails to qualify as a rental or personal interest expenses
If it is rental or residential:
It is possible for you claim tax deductions benefits as well as tax exemption if your house is rented just for two weeks in a year. Meaning that the rental income would be given a tax break and the income is yours to keep. However if the house is rented out for more than 14 days in a year and you reside in the apartment for 2-3 weeks, the house will be regarded as a residential home but you will be able to claim certain tax deductions, though you will have to fill out the tax form for those rental incomes. Tax expenses allowable against rental income must not be more than the rental income. If not, the loss will be written off that year. And no loss will be carried forward. The following are the various rental expenses that are allowable expenses against the rental income:
o Mortgage interest
o Upkeep
o Maintenance
o Mortgage insurance
o Utilities
o Real estate taxes
o Insurance
o Depreciation
o Supplies and miscellaneous expenses
In conclusion remember the following:
o If the property is not used, expenses are deductible against the rent
o If you rent the property less than fourteen days in a year, the rent you receive should not be reported in your tax returns
o If it is rented more than 14 days a year, your expenses are prorated against your income.
