Tax Breaks for Buying a Second House
Buying a home is a major financial event that introduces a variety of expenses like mortgage payments, property taxes and maintenance. A home can, however, be a significant source of tax savings because the Internal Revenue Service, IRS, offers various tax breaks to homeowners. Secondary homes also qualify for certain tax breaks.
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Property Tax Deduction
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The property taxes you pay on a second home are tax deductible. Taxes on land and property can amount to thousands of dollars a year, making the property tax deduction a large potential source of tax savings. Property taxes are deductible on every home that you own, such as a primary residence, secondary residence and every additional residence.
Mortgage Interest
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The IRS states that the mortgage interest you pay on a primary residence and secondary residence is tax deductible. Many home owners borrow hundreds of thousands of dollars in the form of mortgages, which can result in owing thousands of dollars in interest a year. To be eligible for the mortgage interest deduction, a home must have sleeping, cooking and toilet facilities. According to the IRS, a home can be a house, condominium, cooperative, mobile home, house trailer or boat.
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Renting a Second Home
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Some individuals that buy second homes or vacation homes rent the home out for part of the year to earn extra income. The IRS states that if you rent out a second home you must use a second home 14 days or more than 10 percent of the number of days that you rent out the home -- whichever is longer -- to qualify for the mortgage interest deduction. For example, if you rented out a second home for 200 days during the year, you would have to use the home for at least 21 days yourself to qualify for the mortgage interest deduction.
Considerations
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You can only take a deduction for mortgage interest on a primary residence and one secondary residence. If you own more than two homes, you must choose one secondary residence to use for the mortgage interest deduction. The IRS says that if you purchase a new home you can immediately choose to treat the new home as your second home for the purposes of the mortgage interest deduction.
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