Owning your own home is the American dream, but buying a vacation home is the ultimate American fantasy. Whether it's a cabin in the mountains or beach house, you will need to learn how to maximize the benefits of owning your second home. For the majority of people, second homes can have many of the same financial benefits as your first home. It is important to consult your tax advisor so you understand the tax implications before you buy so you can make the most of your second home investment.
Investing in a second home has several benefits. First, you get the same financial rewards that come with homeownership; tax-deductible interest and property taxes are most always deductible. In addition, you may be able to use the home as a source of rental income. If you choose to rent out your vacation home, it can help offset the costs of ownership. Second, you can deduct the mortgage interest you pay on your second home. To the IRS, a second home is one that you personally use at least 14 days per year, or at least one day for every 10 days it’s rented out.
You can use the equity you have built up with your primary residence source to help buy your vacation home. With home values in many markets much higher now than they were a few years ago, many owners have experienced rapid equity growth; leveraging that equity to invest in a second home may be a smart financing strategy.
There are several things to consider when buying a second home. You need to decide what you want to get out of your second home. If you are hoping to help offset the cost of your second home by renting it put a portion of the time, make sure you find out about rental demands in the area you are looking to purchase. Do you want something close by so that you can go regularly, or do you want something a little farther away for longer extended weekends? What do you want to do when you get to your second home? Are you looking to be in the hustle and bustle of the city, or do you want to enjoy the peace and quiet of a secluded spot? The environment, location, and proximity you prefer are important factors when looking for your second home.
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