Okemo Mountain Second-home Sellers Pay For Tax Credits
You have probably heard, last week President signed into law the Housing Rescue and Foreclosure Prevention Act. This is the most comprehensive housing bill to be enacted in over a decade. The bill is designed to help more buyers of Okemo Mountain real estate realize their dreams, as well as, boast the struggling housing and mortgage markets.
One of the biggest benefits, and probably one of the most talked about provisions in this legislation, is the $7,500 tax credit to first time home buyers. Tax breaks are all well and good, but they have to be paid for somehow. While first time home buyers are getting a break, second home sellers will be paying for the $15.1 million dollars in tax cuts.
Up until the new legislation went into effect last week, homeowners could exclude up to $250,000 taxable profit on the sale of their home if they’re single taxpayers and $500,000 if married filing joint returns. The catch being, they had to live the in house as their primary residence for two of the five years before it is sold.
Many second home owners took advantage of this by moving into a property that was once a rental or vacation home, live there for two years prior to selling and benefiting from the tax-free profit.
This article is presented with permission and written by Denise Lones, M.I.R.M., CSP
Journalists are still riding the bandwagon of fear, reporting that second home purchases are going to be no more. Just last week, I heard a pundit advising people to keep their money in their primary residence because of the “impending recession”.
This is ridiculous. Nothing could be further from the truth. Contrary to popular belief, investing in a second home is—and will continue to be—a smart buying decision for many homeowners.
We live in the wealthiest country in the world. Second home buyers are not going anywhere. While the media hems and haws about all the unfortunate people who are in hard times, they completely ignore the fact that there are others who still have lots of money to invest. And what better investment than real estate—even if it’s not your primary residence?
I’m even going so far as to make a radical prediction:
Second home purchases will rise in the next five years.
That’s right—rise! Not diminish.
1. As people age, they experience an increased need to have more quality of life and time away from home.
People love to get away. If they have the money, why not? They want a lifestyle change—the ability to go to a “home away from home”. Whether it’s a cottage in the mountains or a seaside shanty, there’s nothing like having a secondary place to escape to.
2. People have money and they want to invest it.
Traditionally, real estate is more stable than the stock market. This makes it a much more attractive investment for anyone skittish about putting their hard-earned money in the hands of Wall Street sharks.
In addition, the recent and dramatic drops in the Dow Jones have stirred up many valid fears among investors. For that very reason, real estate will continue to be the safer investment—guaranteeing that second-home buyers are here to stay.
Tell your clients about what’s going on. Don’t hold back. Crunch the numbers for them so that they see the incredible value of a second home.
3. People love to own real estate.
The very idea of being a “real estate investor” is enough to make some people purchase a property. Having that label is a sign of prestige, and raises people’s perception of themselves.
Whether or not you find this type of vanity attractive or repulsive, forget about how you think. Again, think like they think. It’s an undeniable fact that such people exist. They love nothing better than to go to cocktail parties and parade their wealth in front of others—describing their properties in detail.
Rather than despising these people for their snobbery—which many of us fall into the habit of doing—learn to love them for their ability to supercharge your business. With just a handful of wealthy investors as clients, a real estate agent can make a fortune.
4. Second-home communities are creating rental income possibilities for investors.
Many developers of second-home communities know that by including certain services, investors will take advantage of the additional income they may receive. Services such as having a concierge on duty 24/7. Or rental pools that encourage owners to rent during the off-season.
Developers have known for a long time that there is a huge market of second-home investors out there. By installing such services from the get-go, they maximize the potential of their community to attract them.
They know people will rent when they’re not there. Why pretend they’re not going to? Now, they encourage them instead. It’s a win-win for both the developer and the investor.
5. Having the ability to purchase a second home is an attractive trait to lenders.
Remember that second-home buyers have a solid track record being the owner of a first home. If a mortgage is all paid for and the buyer is looking to invest in a second one, then chances are this is a good client for the lender. It’s just plain easier to find financing if you already own a home.
Add in possible rental income and lenders become even more enthusiastic.
Side note: I know many of you reading this are struggling with mortgage payments of your own and can’t imagine buying a second home, especially in the current economic climate.
But in order to function best as a real estate agent, think outside of yourself. Think like an investor with a lot of capital. Where would you rather put your money—in volatile stocks or in a second home that you know will appreciate in value over the next 20 years?
As a real estate agent, what an opportunity it is to educate your wealthy clients about the value (and joy!) of investing in a second home rather than a Wall Street portfolio that has a higher chance of going bust.
Don’t listen to the media. Don’t listen to conventional wisdom. Don’t listen to people in financial trouble.
Second-home buyers are here to stay. Find them. Educate them. Help them make more money. When you do, you’ll see your own bank account grow.
To learn more about buying a second home on Okemo Mountain VT or Ludlow VT real estate, please call me at 802-353-1983 or visit ISellVermontRealEstate.com. You may also request a relocation package by clicking here.
Many new home buyers in Vermont are second home buyers, buying a vacation home. Vermont seasons have something for everyone…terrific skiing in the winter, perfect maple syrup making weather in the spring, warm days and cooler mountain evenings in the summer, and gorgeous foliage in the fall.
Purchasing a Vermont vacation home is an exciting venture, but there are some things to think about that are different than when you purchased your primary residence.
1. What is the travel time between your primary home and the second home location? Is it a doable drive or travel distance, or will it become a deterrent to actually enjoying your vacation home?
2. What type of activities does the vacation home location offer and are these activities of interest to you? It is a good idea to visit the vacation home location at various times of the year to get a better idea of what the area is really like.
3. If you are financing your vacation home, interest rates are generally higher and down payments larger. I am glad to put you in touch with a local lender for you to talk loans with.
4. The interest paid on the mortgage for your vacation home is tax deductible, if you don’t rent it out for more than two weeks a year. But unlike your primary residence, the profit you make from the sale of the property is subject to capital gains. One way around capital gains is to sell your primary residence, move into your vacation home and live there for two years before you sell it.
5. Insurance is another consideration. Homeowners insurance in a vacation home is usually higher than on your primary residence because it is vacant for much of the time.
One of the best recommendations I have for you is to get the assistance of a well qualified Realtor who knows the area who has lived in the area for awhile. If you are thinking of buying southern Vermont vacation home, I’m your Realtor!! Give me a call at 800-659-1819 # 103 or visit my website. I am a long time resident of Vermont and a long time Realtor. I’d love to help you buy your dream Vermont vacation home!
Vermont has seen an influx of second home buyers in the past few years. Here are some second-home tax rules to keep in mind.
The mortgage interest you pay on your second home is tax deductible just as the interest on the mortgage on your first home is.
You can write off 100% of the interest you pay on up to $1 million of debt secured by your first and second homes and used to acquire or improve the properties. (That’s a total of $1 million of debt, not $1 million on each home.)
However, if you rent your second home for more than 14 days a year different rules apply. See below.
You can deduct property taxes on your second home, too. In fact, you can deduct property taxes paid on any number of homes you own.
If you rent your second home out for 14 or fewer days during the year, you can pocket the cash tax-free. The house is considered a personal residence, so you deduct mortgage interest and property taxes just as you do for your principal home.
If you rent for more than 14 days, though, and you must report all rental income. You also get to deduct rental expenses, and that gets complicated because you need to allocate costs between the time the property is used for personal purposes and the time it is rented. Taxes are based on the amount of time the house is rented and it is a good idea to talk with your accountant concerning details.
You are allowed to take up to $500,000 of profit tax free when selling your principal residence. However if you make your second home your principal residence, you can extend this deduction.
Some retirees, for example, are selling the big family home and moving full time into what had been their vacation home. Once you live in that home for two years, up to $500,000 of profit can be tax free. (Any profit attributable to depreciation while you rented the place, though, would be taxable. Depreciation reduces your tax basis in the property and therefore increase profit dollar for dollar.)
Are you thinking of buying a second home in Vermont? Visit my website to view all Vermont real estate or give me a call at800-659-1819 #103. I’m glad to help you find your Vermont vacation home!
Pros and Cons of a Second Home
Buying a second home is a big step and likely your second most valuable investment. Never rush into a second home purchase. You need to consider it over time. Determine how much use your vacation home will get and how it can fit into your finances.
Don’t forget to double everything. Buying a vacation home means that you will not only have two mortgages, but two property tax bills, water bills, fuel bills etc. Two homes mean more maintenance, including two plumbing and heating systems, septic systems, and roofs. And if something breaks down in your second home, chances are you may not be there to see it. For some, this is just too stressful.
At the same time, owning a second home can be very rewarding. It can be the source of relaxation: a time to get closer to your family, a place to be a kid again, and a place to meet new friends. It can even be a place to retire.
Lastly, owning your own home is not like renting. You get to leave your stuff there to truly make it yours. You can make impromptu escapes, leaving the stress behind. And your children and grandchildren will feel more comfortable in a place they have learned to call home.
If you’re thinking about buying a vacation home, you’re not alone. The rate of second homeownership has jumped, as large numbers of Baby Boomers move into their prime wage-earning years. It is estimated that 6-10 percent of homes in the United States are second homes. That number is much higher in desirable vacation communities.
According to the U.S. Census Bureau, 32 percent of homes on Cape Cod are seasonal and prices have increased by more than 60 percent since 2000. Seasonal homes represent an even higher percentage on Cape May – 48 percent – and prices have increased by more than 70 percent since 2000, dwarfing the national average, which increased by about 32 percent.
The trend of second home ownership shows no signs of slowing. People in their 40s, 50s, 60s, and beyond are much more active than their parents. They’re seeking outlets for fun, and with two wage-earners at home who have more disposable income than ever, the trend of second home ownership will continue.
If you’re considering a second home purchase, where do you start?
? Location. Consider your personal tastes, interests, and hobbies when you’re choosing a second home. For example, if you’re the type of person who thinks anything over a two-hour ride is long, you’ll have a fairly small geographic area in which to conduct your search. If you plan to use your second home for a couple of vacations every year and long holiday weekends, then you can extend your search to a larger radius. Many second homeowners purchase properties in their favorite vacation spots because they already enjoy the area and want to spend more time there.
? How much are you willing to spend?
Prices can vary greatly. Up and coming communities are less expensive than established vacation hotspots which have seen explosive appreciation. Prices in these popular areas range from a home on the beach worth $1 million to the same-sized home a mile down the road worth half that price. Check current mortgage rates to get an idea of what your monthly payment might be. Don’t shy from jumping in the car and spending weekends looking for different vacation homes.
? Get more specific on your location.
Is your dream vacation home near the lake or on the lake? Do you want to water ski on that lake? Or do you seek a quieter spot to kayak or fish? Or is the lake in the mountains so you can combine winter and summer sports? Is it in an area that is a plane ride away, but one in which you hope to retire? This part of the process will take some time, but you can easily find the prices of second homes in your desired area without leaving your computer.
? Think about what it should look like.
Is your dream vacation home a rustic cottage near the ocean? Or is it a condominium on a golf course? Perhaps it’s a ski chalet in the woods. You also need to determine how big it should be. Is it just for your immediate family or would you like to invite your extended family and friends?
? Find a great real estate agent.
This step is absolutely critical. A terrific real estate agent can not only find you a great home, but find one in a town with moderate property taxes and fun neighborhoods for your children. They can help you with the finerpoints of owning a second home – everything from obtaining beach stickers to trash removal to finding someone to watch your second home when you’re away. And if you rent out your second home, the agent can help you determine the rental price. When you are ready visit: http://isellvermontrealestate.com
? Take your time.
It’s tough to look for a second home, even with the Internet simplifying the process. A growing number of real estate agents make both interior and exterior photos available online to narrow your search without driving back and forth. Remember – rushing into a second home purchase can be a mistake. A trailer on the lake might look good today, but thinking about your long-term goals could lead you to a cottage down the street from a lake, just a mile from the ocean. Look at a second home in the same way as your primary home. The most costly home repair projects are:
That doesn’t mean that you shouldn’t purchase a second home with an outdated kitchen. Just understand that if you can’t tolerate the current kitchen, it could cost you $10,000 to $40,000 to update. Unlike your primary home, you’ll have the additional challenge of managing a renovation project long distance with a quality contractor you can trust.
Buy a second home that suits your personality and needs. If you don’t like working on your primary residence or dealing with contractors, look for a home that needs little work. At the same time, buying the smallest second home in the best neighborhood you can afford means your investment may appreciate at a higher rate.
While rentals in your chosen area may be strong today, make sure you can afford the mortgage without any rental income when budgeting for your purchase. There are many facets of second home ownership that are out of your direct control – everything from a gasoline shortage to a hurricane.
Taking the time to choose wisely means monitoring events in your desired vacation community. Learn how long homes have been on the market to get an idea of how much room you have in negotiation. Learning the overall direction of housing values in your region also helps you make educated buying decisions.