Tax benefits of a Second home
Author: Lokesh Nagpal
It makes good financial sense to invest in a secondary home. Not only does this allow for a potential wind fall gain by way of capital appreciation but it also provides a number of tax benefits. The Government allows for such tax concessions to promote the growth and development of the real estate sector.
In order to enjoy the tax benefits allowed by IRS, it is essential that your secondary home is classified as a vacation home. The other forms of secondary home could be rental property or an investment property. You need to fulfill two essential conditions for your secondary home to be classified as a vacation property. Firstly, it should necessarily consist of a sleeping room, bathroom and a kitchen. Secondly, you must make use of this vacation home for your personal use for at least 14 days in an year. Properties which are rented out for a period of one year or more are not categorized as vacation homes simply because you do not use this property for the stipulated number of 14 days for the property to be categorized as a vacation property. The investment in a vacation home allows you to generate tax free income because you are availing the services from your own investment which you have purchased otherwise in the normal course.
It is always easy to work with numbers and let us look at the tax benefits of investing in a vacation home by way of a simple example. Let us assume that you have invested in a lake side cabin by paying an individual USD 50000.It is mandatory to use this vacation home for a minimum period of 30 days. This period includes self usage period of 14 days. Remember there no tax concessions allowed in case you fail to use this vacation home for personal use. Having made use of this vacation home for 14 days, it is now essential to rent out your vacation home for a period of just 16 days to be eligible for tax shelters related to vacation homes. Let us consider that the good location of your vacation home makes it easy for you to put it on rent for 60 days in a year. You charge a rent of USD 100 per day for this lake side cabin. This means that you are generating an income of 6000$ against an investment of 50000$ which means an after tax yield of 12%
Similar to primary homes, investment in a secondary homes offer mundane tax benefits as well. The interest expenses paid to the lending institute are deductible from your earnings to compute tax. It is advisable to take the advice of your professional accountant before you decide to invest in a secondary home. It is very essential to understand the income tax aspects related to different category of property. Remember the tax shelter is available only against a vacation property and not for a rental or an investment property.
Truly amazing real estate deals at Biltmore Phoenix Homes, Dynamic Mountain Ranch Phoenix Real Estate or Ahwatukee Community Lake Property.
In order to enjoy the tax benefits allowed by IRS, it is essential that your secondary home is classified as a vacation home. The other forms of secondary home could be rental property or an investment property. You need to fulfill two essential conditions for your secondary home to be classified as a vacation property. Firstly, it should necessarily consist of a sleeping room, bathroom and a kitchen. Secondly, you must make use of this vacation home for your personal use for at least 14 days in an year. Properties which are rented out for a period of one year or more are not categorized as vacation homes simply because you do not use this property for the stipulated number of 14 days for the property to be categorized as a vacation property. The investment in a vacation home allows you to generate tax free income because you are availing the services from your own investment which you have purchased otherwise in the normal course.
It is always easy to work with numbers and let us look at the tax benefits of investing in a vacation home by way of a simple example. Let us assume that you have invested in a lake side cabin by paying an individual USD 50000.It is mandatory to use this vacation home for a minimum period of 30 days. This period includes self usage period of 14 days. Remember there no tax concessions allowed in case you fail to use this vacation home for personal use. Having made use of this vacation home for 14 days, it is now essential to rent out your vacation home for a period of just 16 days to be eligible for tax shelters related to vacation homes. Let us consider that the good location of your vacation home makes it easy for you to put it on rent for 60 days in a year. You charge a rent of USD 100 per day for this lake side cabin. This means that you are generating an income of 6000$ against an investment of 50000$ which means an after tax yield of 12%
Similar to primary homes, investment in a secondary homes offer mundane tax benefits as well. The interest expenses paid to the lending institute are deductible from your earnings to compute tax. It is advisable to take the advice of your professional accountant before you decide to invest in a secondary home. It is very essential to understand the income tax aspects related to different category of property. Remember the tax shelter is available only against a vacation property and not for a rental or an investment property.
Truly amazing real estate deals at Biltmore Phoenix Homes, Dynamic Mountain Ranch Phoenix Real Estate or Ahwatukee Community Lake Property.
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