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| Like so much when it comes to taxes, the most accurate answer is, “it depends.”
If you are financially able to consider purchasing a second or vacation home, you should have spent at least a little time trying to understand your financial goals—also your financial reality—and for most of us, it’s easier said than done.
Surprisingly –or perhaps not, given their frequent location—second or vacation homes many times cost more than the owners’ primary residence. That makes it even more important that you make the right choice. If you’re one of those fortunate few who can afford to have a second home sit empty most of the year, you can stop reading right now. If you little piece of paradise’s mortgage, maintenance, upkeep, insurance, and property tax costs are a concern to you (as they would be to 98% of us), read on. But I’ll tell you right upfront; in my opinion, not only are second homes not good investments, they are usually financial burdens.
True, you can rent it out during the times you aren’t using it, but do you REALLY want anyone with an extra $400 to spend the night in your $1.5 million beach condo? I didn’t think so. If you rent (or loan) it, your maintenance and repair costs WILL increase. There’s no way around it. And the tax man will take a bite out of your rent proceeds.
The tax laws have changed considerably regarding second homes, vacation homes, and investment homes. If you own a second home for personal use, you can rent it for up to two weeks without reporting any of the income. But you’ve got to spend at least two weeks in it yourself, or the IRS considers it an investment property and there more rules to consider.
There are those who would disagree with me, but in my opinion, you should save yourself a lot of time, trouble, money, and effort. Spend $400 a night for someone else’s little piece of paradise and then go home without a care in the world.
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