Buying a second home? Don’t overlook key tax considerations

Advisors


If you’re considering buying a second home, there are a number of financial considerations, including purchase price, carrying expenses and tax issues. Although it’s more fun thinking about the home’s décor and local attractions, taking the time to plan ahead for a few key tax issues can save you money, and potential headaches, later on. Here are a few things to take into consideration.

Make sure to take advantage of all available tax breaks. When it’s time to file your income-tax return, you can itemize and deduct real estate property taxes from both your primary residence and your second home (and on any additional homes you own), but keep in mind that the new Tax Cuts and Jobs Act of 2017 caps this deduction at $10,000.

If you’re taking out a mortgage to buy that second home, you can also deduct the interest on up to $750,000 of mortgage debt used to acquire your first and second homes or to improve those properties. (The new law reduced this from the previous limit of $1.1 million.)

More from Straight Talk:
Micro-investing builds wealth a few dollars at a time
Why Roth IRAs are great for millennials
How to simplify your financial life … with two sheets of paper

Know the (tax) rules if you plan to rent your vacation home. If you plan to use your second home for only part of the year, during other periods you may want to rent it to other vacationers to help offset the costs of maintaining the property. Be mindful that if you rent the home for more than 14 days of the year, you must report that income on your tax return.

Some homeowners are surprised to learn that if they rent the house for just one month, that income is reportable and taxable — even if they have no plans to rent it again in the future. In addition, any deductions you take (such as the property tax or mortgage-interest deductions mentioned above) may be limited to the amount of rental income generated by the property.

If you try to live in two places at once, it might cost you. On rare occasions, people who split time between two residences in different states can be on the hook to pay taxes in both states. Example: Your primary residence is in California, but you also do business in New York and have a second home there. If you are filing a nonresident income-tax return based on those New York business interests, you have to disclose that you also own a home in the state — and if you spend more than 183 days of the year in New York, you’ll be taxed on your “worldwide income,” in both California and New York.



Source link

Products You May Like

Articles You May Like

Billionaire investor Leon Cooperman says bonds, not stocks, are in a bubble
Earnings may save stock rally
Self-driving cars take to the road, but not everyone is ready to ride
Automaker releases mid-size SUV in China
AT&T, Costco, Walmart: Too many streaming video services

Leave a Reply

Your email address will not be published. Required fields are marked *