Owning a second home can pay substantial dividends in the form of an increased quality of life. Whether it’s an escape from winter or an escape to a ski resort, a second home can make a profound impact on your family’s lifestyle.

If you’re considering buying a second home, there are a number of financial considerations including purchase price, carrying expenses and tax issues.  Although it’s more fun thinking about the home’s décor and local attractions, taking the time to plan ahead for a few key tax issues can save you money (and potential headaches) later on.

#1 – Make sure to take advantage of all available tax breaks

When it’s time to file your income tax return, you can itemize and deduct real estate property taxes from both your primary residence and your second home (and on any additional homes you own), but keep in mind that the new Tax Cuts and Jobs Act of 2017 caps this deduction at $10,000. If you’re taking out a mortgage to buy that second home, you can also deduct the interest on up to $750,000 of mortgage debt used to acquire your first and second homes or to improve those properties (the new law reduced this from the previous limit of $1.1 million).

#2 – Know the (tax) rules if you plan to rent your vacation home

If you only plan to use your second home for part of the year, during other periods you may want to rent it to other vacationers to help offset the costs of maintaining the property. Be mindful that if you rent the home for more than 14 days of the year, you must report that income on your tax return. Some homeowners are surprised to learn that if they rent the house for just one month, that income is reportable and taxable—even if they have no plans to rent it again in the future. In addition, any deductions you take (such as the property tax or mortgage-interest deductions mentioned above) may be limited to the amount of rental income generated by the property.

#3 – If you try to live in two places at once, it might cost you

On rare occasions, people who split time between two residences in different states can be on the hook to pay taxes in both states. Example: your primary residence is in California, but you also do business in New York and have a second home there. If you are filing a non-resident income tax return based on those New York business interests, you have to disclose that you also own a home in the state—and if you spend more than 183 days of the year in New York, you’ll be taxed on your “worldwide income,” in both California and New York.

#4 – Before you buy … call your advisor!

Too often, clients will only inform their financial advisors of their new home after the purchase is already completed. But tax considerations are only the tip of the iceberg in terms of ways that an advisor can provide valuable counsel about the home-buying process. Your advisor can also help you structure the purchase and titling, as well as navigate any potential implications for estate planning or other elements of your overall wealth strategy. And, if your new digs happen to be in a place we love too, we might even have a great restaurant recommendation to pass along.

 

This article was written by Rob Clarfeld from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.