Buying a Second Home (Vacation Home)

I'm already dreaming of retirement and I know exactly where I want to be. When I'm seventy, I want to open my window to the ocean and sunshine, not a concrete highway. I'm just hoping that global warming doesn't swallow up my imaginary condo on the island that I have my eye on. I guess I still have 40-60 years to wait and see.


Who knows, if the government axes social security, I may be working my fingers to the bone until I'm 80. For those of you who are nearer to your goal of acquiring a vacation home, and want to recoup some of your costs by renting out your home, please consider the following:

Renting out your home

-On average, vacation homes need to be rented 15 to 17 weeks a year in many areas to break even.

-If you rent our your home for 14 days or less over a calendar year, you don't have to report rental income! However, this means that you can't deduct expenses from renting out your home. So ... the BBQ pit you were thinking of adding and writing off to 'improve the property' just isn't going to happen.

-If you rent out your vacation home for more than 14 days, you are entitled to deduct expenses, but only up to the amount you earned in rental income.

Living in your vacation home (no renters please!)

-You can write off 100% of the interest you pay on up to $1 million of debt secured by your first and second homes combined.

-You can deduct 100% property taxes on your second home.

-If you use your second home for 14 days or less, it is no longer considered a vacation home and considered a rental property instead, which means that you can deduct up to $25k a year in losses, but these deductions may be pro-rated when your AGI hits $100k and completely vanish at $150k.