Vacation Home Ownership

Vacation Home Ownership - What You Need to Know

Phoenix Supplemental Image
Top 5 Things to Consider:

T
ip #1: LOCATION LOCATION LOCATION!

We hear it all the time and it is the first rule in real estate for a very good reason and even more so when talking about vacation homes. The two primary things you are considering are: Where do I want to live when I’m using the property and Where do renters want to be when renting a vacation home?

Tip #2: RENTAL RESTRICTIONS

Pay attention to what the rules and regulations are when investing in a property. You can contact HOA and research for the best results.

Tip #3: PROPERTY MANAGEMENT

For those of you who don’t have the time and energy to devote to advertising a property, handling the lease, collecting rent, paying the taxes and dealing with maintenance issues, a property manager is a great asset.

Tip #4: COSTS

As you can imagine, there are costs associated with owning a second home. There are condo/HOA fees, property taxes, insurance, property management fees, utilities, and general property maintenance. These can add up so embrace them as well as the realistic rental potential of your new home.

Tip #5: KNOW WHAT YOUR SEASON IS

When is the prime time people come to your location looking to take a vacation?

Tax Benefits:


If your Vacation Home is just for personal enjoyment, then the standard deductions apply found on IRS form Schedule A.Note that the total deduction for state and local taxes is now capped at $10,000 as of 2018 through 2025.

If the primary use of the property is for a rental revenue stream, then there are a series of additional opportunities for deductions such as:

Mortgage Interest
Utilities
Property Taxes
Insurance
Housekeeping
Maintenance, repairs, as well as Property Management fees
Even things like Bedsheets
Consult IRS Form Schedule E for additional optionsKeep in mind, rental properties can still be enjoyed for personal use when unoccupied if kept below the threshold allowed by law.
Also, keep in mind the time spent at the property when conducting maintenance and repairs does not count towards those personal use vacation days.

A Vacation Property purchased by a business owner for Business Lodging may leverage additional deductions. Last and not least, for business entities, there is a method of deferring capital gains on the sale of an existing property if the proceeds are utilized in the purchase of a new higher value property for commercial use. Which is called a 1031 exchange.

*The purpose of this was strictly for general information and you should consult a CPA or tax preparer for guidance.