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If you are considering a second home, long-term investment prospects may be favorable. There are a lot of properties available in attractive vacation areas because many people are trying to unload their second homes.
Although second homes may be available at bargain prices, buying them now might not be so simple. Financing a second home might be a problem, even for those who are approved; a second-home mortgage might be surprisingly costly. Most people aren’t aware that mortgage rates are higher for second homes than for primary residence.
Before moving forward, a potential buyer should estimate the total costs including property taxes, utilities, maintenance, insurance and security.
As is always the case with a major financial decision, there are taxes to consider. Just like with a primary residence, second-home owners generally can deduct property taxes and mortgage interest up to $1 million of total home acquisition debt. Other deductions might be available to clients willing to rent a second home to paying customers.
On the other hand, when you sell a second home, you’ll likely be subject to capital gains as there is no tax exemption as there is in your primary residence.
An option would be to rent your second home as a short term rental of course much will depend on its location. Depending on how many weeks per year you rent your second home will affect your tax situation as the second home could be considered by the IRS as a rental property.
Daniel Iuculano
Financial Planner
