Taxes on Second Home or Rental property?

Question

Does 2nd Home have to be at a certain distance from the primary house to qualify as 2nd? If we buy both the homes in the same year, what are the criteria to pick one as primary versus the other? What about the Interest rates for 2nd home? Are they higher compared to primary? Thanks for answering my questions, we are very new to Investing in Rental or 2nd home.

Answer 1

Your question should be directed to an accountant for a proper answer. I'm not a CPA, I am a retired realtor, so this explanation may be a little rusty. For tax purposes, you have to live in your primary home for 2 out of the last 5 years. So, if you buy a second home, it will not be your primary residence because you just bought it and dont live in it full time. I do know people that sold their primary home, then moved into their 2nd home full time, in order to take advantage of the tax break. One of the things you have to do is register your vehicles at your primary home, that much I remember! If you are planning on purchasing a second home and renting it out part- time, you have certain tax advantages as well- you can depreciate the home, you can deduct some of your repairs and maintenance, etc. That is why I urge you to consult an accountant. It is a much more complex question than can be addressed in this forum.
You will always pay more for the mortgage on a rental property than on your primary home. One way to avoid that- if your primary home is paid up, take out an equity line on it and use that cash to pay for your new, 2nd home. Again, an Accountant can give you some ideas on how to keep your expenses down...

Answer 2

There is no distance criteria. The mortgage interest and property taxes on a primary and second home are normally fully deductible.

Your primary residence is the one in which you normally return to at the end of the work day or the one that you spend the greater portion of the nights in throughout the year.

Interest rates are primarily based upon your creditworthiness. For many folks that may mean a higher rate for a second home but that's no always the case.

A rental is an entirely different animal. You can own as many rental properties as you wish and all expenses related to the production of rental income are generally deductible regardless of how many properties that you own.

Answer 3

Many lenders use 30-50 miles away as criteria for a 2nd home (vacation home)
You can only have ONE primary residence.

Normally, your 2nd home must be in a vacation area, Mountain, Desert, Beach, Touristy Area, etc.

The interest rate for a 2nd home, as above is the same as primary residence with most lenders.

So, you cannot buy a 2nd home in the next town over. You also cannot trick the lender into believing that a rental property will be your 2nd home.

Answer 4

You can deduct the mortgage interest on a first and second home. You can deduct all property taxes on personal residences regardless of how many you own. Since you are obligated to pay the interest and taxes and actually pay them, you are the one who can deduct them. This assumes that YOU own the second residence and didn't gift it to your mother. If you did gift it to her then nobody can deduct anything -- you because you are not the owner and she because she didn't pay. (You'd also have to file a Gift Tax return for the year of the gift since the value was presumably more than the annual exclusion amount, currently $13,000. Gifting it to her would be a major mistake from a tax perspective.)

Answer 5

The interest rate on your primary residence will usually be lower than the one on your second home. Most banks consider a second home to be no larger than a single family. So if one of the homes will be a two-family or larger consider making that one your primary residence. If you have any questions feel free to email me.

Answer 6

Rent-To-Own Home - http://RentToOwnHome.uzaev.com/?SssK