The benefits of owning a second home are numerous, particularly if used as a family retreat. The relaxation and recreation that a getaway provides cannot be put into monetary terms. But many second homes are used as income-producing investments and the rent derived from them can serve to defray the cost of owning and maintaining the property. In this regard, the benefits are tangible and can result in tax consequences. That said, most of IRS’ rules are relatively palatable.
According to the IRS you can have only one main residence at any one time, and a second home is any home that you choose to treat as your second home. You can have more than one second home, but only one second home can be “qualified” for tax purposes.
Your second home can represent tax benefits. Married taxpayers who file jointly can deduct interest on a combined total of $1 million of “home acquisition debt” for their primary and secondary residences. Further, homeowners may deduct up to a combined total of $100,000 of home-equity debt on their first and second homes as well.
Lauderdale Bay Villas and Yacht Club, Myrtle Beach, SC
IRS rules for second home qualification include:
- If you purchase a new home during the year, you can choose to treat the new home as your second home as of the day you buy it.
- If your main home no longer qualifies as your primary residence, you can choose to treat it as your second home as of the day you stop using it as your main home.
- If your second home is sold during the year or becomes your primary residence, you can choose a new second home as of the day you sell the old one or begin using it as your main home.
If you have a second home and rent it out part of the year, you are obliged to personally use it during the year in order for it to qualify as a second home. You must use the home more than 14 days per year, or more than 10% of the number of days during the year that the home is rented (“at a fair rental rate,”) whichever is greater. If you do not use the home long enough, it is considered rental property and not a second home. For more information on residential rental property, see IRS Publication 527.
In any event, you may want to consider hiring a tax professional to address some of these issues. A trained tax professional will advise on the myriad homeowner benefits that can often be overlooked or fall through the cracks when we file on our own.
Source: IRS.gov Publication 936
