Vacation homes are great for you can getaway whenever you want without making reservations and you have a designated vacation spot. You can travel light and have a change of scenery. Your second home can be your retirement home where you can retreat and travel to warmer weather in the winter. Vacation homes can be an excellent family destination and memorable to your children and grandchildren. Second homes must be lived in at least party of the year and keep it for personal use or enjoyment at least half the year. The home must be a single unit. Your second home cannot be located too close to your primary residence to be considered a second home. The interest of the mortgage is deductible on your second home if not rented.
Investment Property or Rental Income
Buying a second home can be an investment when you rent or upgrade and resell. A second mortgage is needed to buy your rental property, then be prepared for a larger minimum down payment than on your first mortgage. A Cash out reference is when you replace your current mortgage with a new larger mortgage so you can access cash by accessing your home equity. Home equity loans rely on equity in your primary home as collateral to obtain money, either as large sum loan or with a credit line. Your mortgage or interest rate may be higher than a vacation property if you rent out your home for 14 days or less over the course of a year, the rental income tax is free. Your rental income can help cover the expenses of owning the second home.
Interest on the second home loan is deductible. A Capital gain exclusion can be added to your tax income. If your home is vacant you can the interest and the property tax can be fully deductible from your gross income. Home improvements can be deducted on the interest on a home equity loan or line of credit. A second homes property tax can be deducted which are based on the assessed value of the home.
Costs of a Second Home
You will need extra furnishings in the home for essential living and appliances. Decorating, remodeling and updating can add to the cost of the purchase of the new home. Home insurance will need to be provided for the second home. Utilities will be a constant cost per month. Maintenance of lawn care, patio /deck repair, pool repairs, snow removal and roof and driveways replacement costs. You will want to make sure your income level is able to support two homes. Second homes can be a great assets to your travel adventures and financial investment.