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!
Mortgage insurance will become tax deductible in 2007 thanks to last minute passing of a law by the 109th Congress. Mortgage insurance is charged to borrowers who have less than a 20 percent down payment for govenment and private mortgages. The new law will allow mortgage insurance premiums to be treated like mortgage interest on tax returns saving Americans a considerable amount of money each year. Full story…
If youo are thinking of buying a home in Vermont or would like more information on how this new law effects your buying powewr, visit my website or give me a call. I’m here to help!