Tax Tips To Consider When Buying A Shore Or Vacation Property
Taxes; the second certainty in life. Are you considering upgrading from that vacation home rental into a property you own yourself? If so, we have some tax tips that can help save you some time and confusion later down the road. Here’s a list of some tax tips you should consider when buying a shore or vacation property:
Local/State Taxes Are Deductible: Along with your mortgage interest, both the state and local estate taxes (which are paid on a second or vacation home) are generally deductible. Check with your local tax law guidelines for clarification.
Renting Out = Deduct Costs: If you don’t use the home for personal use for at least 14 days, you qualify for the corresponding deductions. Expenses that are deductible may include mortgage interest, real estate taxes, casualty losses, maintenance, utilities, and insurance.
Capital Gains Tax After Selling: You’ll likely be subjected to paying a capital gains tax once you sell your vacation home. The exception would be if you converted your vacation home into your primary home. But be aware, you must have lived in that residence for two to five years prior to sale to avoid the tax. But those years don’t have to be sequential.
Never Claim A Loss: Unfortunately, you won’t ever be able to claim a loss for the sale of a personal residence, no matter how much the market may turn on you. However, you can claim a capital loss on an investment property, depending on the nature of the loss and whether you have offsetting gains.