Residential Investment Property

Learn the Tax advantages of a second house

Second house is generally a vacation home for most of the people. Other use of the second property can be as rental property. Actually, many people find it more convenient to rent a single family home rather than staying in a hotel for vacation nowadays.

There are few guidelines given by IRS to determine whether the property is residential, a second home or an investment property. In order to claim your property as residential property you have to stay in it for at least 14 days in the calendar year. In addition to this your property should have a kitchen, a place to sleep and a bathroom in order to qualify for a vacation or residential house.

If you rent it for more than 2 weeks, it will be considered as a rental property.

If you rent your property for less than fourteen days, you can enjoy a tax break on your income as you will not need to report this income to the IRS. Also, you can deduct the interest rates for mortgage as well as the taxes for the real estate in such a case.

However, you your renting period exceeds two weeks, you will be required to report the income to the IRS. You can still get deductions on expenses like mortgage insurance, mortgage interests, depreciation and taxes from the real estate. However, if the expenses exceed the earnings, other allowable deductions will no longer be deducted.

It is highly recommended that you consult a professional before plunging into such a venture. This will help you identify your financial gains and benefits.

Buying a second home is always cost intensive. Therefore, you need to have a fair knowledge of how to reduce the cost by learning how you can reduce your taxes on the second property. You should familiarize yourself with the various tax deduction options you will have if you purchase a second house. And the most important factor to be kept in mind in such a case is that you should be able to report your second house as a residential property or vacation property (that is you should be able to report the house as being used for personal purposes) in order to get the maximum benefits.