You may be feeling fairly flush these days, with a bigger salary, job security, appreciating homestead and other wise investments. Now might be the right time for you to buy a vacation home.
According to the 2019 U.S. Vacation Home Counties Report compiled by the National Association of REALTORS, the median price of vacation homes between 2013 and 2018 appreciated 36% compared to existing and new homes at 31%.
Like many vacation home buyers, you may be thinking of a great family getaway, but you can also use a second home as an additional way to build equity. You can lease it for income, and then use the property as your primary residence upon retirement.
Banks have stiffer qualifying requirements and charge higher mortgage rates for non-primary homes. Federal tax laws allow you to deduct interest for both a primary and second home up to $750,000 for married couples and $375,000 for singles, as well as local property tax amounts paid. However, you only have one homestead that qualifies for the owner/occupant tax rate from your local taxing authority.
If you rent the property fewer than 14 days, you don’t have to report rental income to the IRS. Otherwise, you should go to IRS.gov or ask your accountant to explain rental income rules so you can be better prepared at tax time.