Tax Code Regarding a Second Home vs. Rental
What Qualifies as Second Home?
- Many different types of property can qualify as a second home. If the structure has sleeping, eating and bathroom facilities, you could qualify it as a second home. For example, a free-standing home, a condominium, a recreational vehicle or a boat could all qualify as a second home, according to the IRS. If you have multiple properties, you only get to choose one property as your second home; the IRS lets you choose to which property you give this designation.
Mortgage Interest Deduction
- When you own a primary residence, the IRS lets you deduct the amount of mortgage interest that you pay if you itemize your deductions. When you buy a secondary property, the IRS also allows you to take this deduction. However, you must use the property for more than 14 days out of the year if you wish to take this deduction. If you do not use the property this often, the IRS will count is a rental property.
- If you rent the property out for more than 14 days and you use it less than 14 days out of the year, the IRS counts the property as a rental. In this case, you must count the rental income that you receive towards your annual income. You also get to deduct expenses from the rental property because it is treated as a business. For example, you get to deduct items such as advertising, repairs, property taxes and insurance.
- The IRS also has a special rule in relation to reporting income on properties that are seldom rented out. If you rent the property out for less than 15 days in the year, you do not have to report any of the income that you receive. You also do not need to report any expenses associated with the property, even though you are using it as an income-generating property for part of the year.