What second home tax deductions do I have when owning a second home* in Florida?
Just what is a Second Home or aka Vacation property? It is a niche in the real estate market dealing with residences used for holiday vacations (e.g. beach house). In the United Kingdom this type of property is usually termeda holiday home, in Australia, a holiday house/home, or weekender, in New Zealand, a bach or crib. In the United States the most common designation is second home. (definition provided by Wikipedia). What Wikipedia did not take into consideration is the Second Home, or Vacation Home, may also be an investment/income property.
There are a few tax questions to be answered concerning the ownership of a secondary dwelling, whether you solely use the property as a vacation home (not renting it) or if it is an income property (renting it). If you are interested in purchasing that property you always wanted, on or near the beach, fear not…Uncle Sam is kind to secondary owners wit h many second home tax deductions!
Please let me state that, by no means, am I an Accountant (although I know more about Quickbooks than I care to) and the following information should be used as a guide. I highly recommend consulting your Accountant to discuss what your maximum second home tax deductions and benefits might be.
If you finance the property, you may take a second home mortgage deduction. The interest is tax deductible, the same as a primary residence, up to $1.1 million, as long as it is not rented to others.
Now, if you rent the residence, but only for 14 days per year, you get to keep the income for that 14 days, no matter how much you have charged for the short term rental. This is because the house is still considered a personal use residence. For example, if you charge $5,000 per week, then you are clearing $5,000 a week for the limited two (2) week period, resulting in a clear profit of $10,000.
If you rent the secondary home for fifteen (15) days or more, the rules change. You must report the rental income BUT you get to deduct rental expenses. Here it gets interesting…you have to take into consideration the amount of time you personally use the property in ratio to the amount of time the residence is rented. Your rental management company and Accountant can better show you the formulas, relative to usage. (Form Schedule E is used on your tax return).
Some other possible second home tax deductions for the dwelling may be property taxes, depreciation, repairs, insurance and interest.
There is also a “mix and match plan”, as I refer to it, concerning when you retire and want to use your secondary home as your primary and still get a good tax cut. I am not about to explain it but your Accountant, once again, is the person to disc u ss how you sell the properties in relation to primary verses secondary. It is all very confusing to the lay person but, once again, there are second home tax advantages to owning vacation property.
Think about it. You could own a piece of your “paradise” in Destin FL or along 30A and even get a little t ax break for doing so. To me, it sure makes sense, but you have to research the matter with your personal accountant and decide if it is right for you. I just know it probably is! So when you decide to make that purchase along our Emerald Coast, from Destin FL to Rosemary Beach, the land of comfort and beauty, give me a call and I will make the acquisition an easy, enjoyable experience!
*Home refers to condo, single family home or town home.