Your second home may be your personal sanctuary and home away from your primary residence. Or it may be an investment property that you use solely as a rental. Sometimes, it's in-between these two, a mixture of pleasure-abode and income-generator. As far as the IRS sees it, you've got to figure out where you are in this spectrum if you want to claim all the deductions you can.
The Nonprimary Residence
The IRS treats your second home much like your primary home for tax purposes -- provided you meet use criteria. Real estate taxes paid on your second home are generally deductible, as they are on your primary home. Deductible taxes include those on the state, local and foreign levels. Mortgage interest is deductible for the second home, provided that the combined limit for both primary and secondary home is no more than $1 million for acquisition indebtedness and $100,000 for home equity indebtedness, as of 2015.
Personal-Use Second Homes
If you use your second home for personal enjoyment, you can deduct mortgage interest and real estate taxes on Schedule A. As long as you do not rent the second home for more than 14 days, you do not have to pay taxes on the rental income. As a personal-use home, your second home may qualify for deductions on uninsured casualty losses, but you won't be able to deduct rental-related expenses.
Second Homes as Rental Homes
If your second home is a residential rental property, it is essentially a business and the IRS treats it completely differently from a personal-use home. You'll be able to deduct more than just mortgage interest and property taxes: add to that depreciation, utilities, linens and repairs. As long as your personal use is limited to 14 days maximum or 10 percent of total days rented, you can deduct up to $25,000 in rental losses -- or the difference between rental expenses and rental income -- provided your adjusted gross income is less than $100,000, as of 2015. You must also be actively engaged as a landlord.
Mixed-Use Second Homes
You might use your second home for personal reasons but rent out the home for more than 14 days. To maximize deductions, notes home improvement website House Logic, you should limit your personal use of the second home to fewer than 15 days or 10 percent of the total rental days, whichever is greater. Once you exceed these limits, your deductions will be limited proportionally to the time spent for personal use versus renting.
- Kiplinger: Tax Planning for Owning a Second Home
- IRS: Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
- House Logic: Tax Deductions for Vacation Homes
- 360 Financial Literacy: Tax Benefits of Home Ownership
- Mortgage Info: The Tax Benefits of Purchasing a Second Home or a Vacation Home