As a homeowner, understanding what you can and can’t deduct from your taxes is crucial. The tax system may seem straightforward, but it becomes more complex if you own a second home. Let’s explore key differences in tax breaks based on whether you use the second home personally or rent it out.
If you use it for personal use…
Owning a second home for personal use allows you to deduct mortgage interest just like you would for your primary residence. The mortgage interest deduction makes homeownership more affordable. To qualify for this deduction, the second home’s mortgage must be a secured debt in your name. You can also deduct property taxes for a second home. Property taxes are a significant part of tax dollars—property taxes made up 45% of taxes collected in NYC in the 2017 fiscal year. You can deduct property taxes for all your homes. However, starting this year, the total deductible amount is limited to $10,000 per tax return. If you own a second home, you might already exceed this limit with your primary residence. Tax accountants can help you determine how much you can deduct for both homes.
If you rent out the home…
Many second homeowners choose to rent out their property when not in use. If this applies to you, the tax breaks will differ. Renting out the property for 14 days or less each year means you don’t have to report the rental income to the IRS. The property remains classified as a personal home due to the short rental period. In this case, you can still deduct mortgage interest as you would for a primary residence. However, if you rent out the home for more than 14 days, the IRS treats it as a rental property. You must allocate costs between personal and rental use, but you can deduct rental expenses. Consider investing in accounting services to help you navigate these deductions.
This article aims to clarify tax breaks for your second home. For additional guidance, consult tax accountants to ensure you receive all the deductions you qualify for.
