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When you sell your home, the IRS allows a tax- free profit from the sale of a primary residence of $500,000, or $250,000 for a single person.
Multiple properties: If you have more than two homes, the IRS allows you to designate different homes as primary and secondary homes every year.
This is only intended as general information, it is not intended as a substitute for professional advice. You should always seek the advice of a financial professional before taking any action.
|Vacation Homes, Second Homes and Condos|
It's a fact that in the current housing market there are affordably priced and very desirable vacation and resort properties. Now may be the time to make your move, especially if your retirement plan includes year- round fishing, golf or boating. Decidedly, such a move requires some complex planning and decision making, but if the expenses of maintaining a large, and largely empty house are beginning to weigh closely against what it may bring in lower market value, you may want to schedule some time with your financial planner or accountant. Because, aside from the lifestyle enhancements that a vacation home affords, there are tax considerations as well. For some people, two small residences may be a better deal than having one large home.
Also, there is the option of using the second home as investment or rental property for part of the year to offset its costs until the arrival of your full-time retirement. Outlined here are some of the tax considerations, and take note that these are provided as general information only and cannot substitute for a consultation with your professional financial or tax advisor.
A qualified main or second home may be a house, condominium, cooperative, mobile home; even include a house trailer, boat, or similar property, just so long as it has sleeping, cooking, and toilet facilities. If the home is under construction, or destroyed, then sold after being rebuilt, or the land on which it was located is sold, all are treated as qualified homes.
If you use a second home as a residence rather than renting it out, generally the mortgage interest is deductible with the same limits as your first home. You can write off 100 percent of the interest you pay on up to $1.1 million of debt secured by your first and second homes and used to acquire, or improve, the properties. Note that the property must be secured debt to qualify.
The property taxes are also deductible on every home you own. However, if you rent out your second home for more than 14 days per year, or use it for personal use for fewer than 14 days, the tax rules become far more complex. This is especially true for the $100,000- $150,000 income bracket.
When selling your second home, it can be a tax- free profit if you live there full- time for two years, and do not rent it out during that time for more than 14 days. If it has been rented, then any depreciation claimed in previous years would then be taxable.
Every month I'll be posting a list of terrific vacation and second homes from the MLS. I'll be delighted to work with you and your financial advisor to get the best deal on a second home for pleasure, investment or your retirement! Call me for more information at 612-250-0119.
References used for this article
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