Tax Laws For Second Home
| If you are interested in knowing tax laws for second home then you should read this through. Basically, investing in a second home gives you the same tax benefits as owing the primary home. There tax benefit in a second home does not come from deduction of interest and taxes.
Rather the benefit is in the value of the use of the home on a rent free and tax free basis. The idea behind a second home is to have vacation facilities which otherwise you would have been paying for with after tax income.
If you have financed your second home through a mortgage, you can deduct the interest amount from your taxes the way you would for a primary residence. Any real estate taxes are also deductible as along as you itemize the deductions. If you rent your second home for more than 15 days in a year, you have to report the income on Schedule E along with related expenses.
Many people in the US are keen on owning a second home. They usually want a second home for two reasons -- one for family vacations and the other is a place to retire to. Tax laws allow people to sell the primary home without paying capital gains tax on the first $250,000 of the gain. It is $500,000 if a couple is filing taxes jointly. This means that many couples actually take this step to move to their dream location after retirement. However, the problem with this is that the couple would still need a place to stay while they scouting for a home and end up using most of the money to pay rent.
The best solution for couples like this would be to buy a second home through a mortgage long before retirement. Get a reliable real estate management company to take care of the property for part of the rental income. Use the mortgage to any tax deductions while the rental will help the couple make the mortgage payment, and in 15 to 20 years, you will have a second home with no mortgage. Sell the primary residence and make use of the $250,000 or $500,000 capital gains tax free money to increase your retirement income.
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