Purchasing a Second Home
When purchasing a second home, you may need a higher credit score to qualify for a mortgage, and you might receive a higher interest rate due to increased risk for the lender. On the other hand, it may be that neither of these things happen – each situation is different. A second home has the following characteristics:
- It must be a reasonable distance from your primary residence.
- It must be exclusively under your control and not subject to a rental, timeshare or property management agreement.
- You must live there at some time during the year. While someone else can live in your home other than yourself, some lenders may place limits on how long the home is occupied without you living there.
- The property must be accessible by car year-round.
You can even rent it out for up to two weeks and keep the income tax free. If you rent for 15 or more days, you’ll have to report the income, but you may be able to deduct certain things as a rental expense. It’s important to note that either your lender or the investor in your mortgage may place special limits on how often the property can be rented out.
Second homes also qualify for the mortgage interest tax deduction, although if you’re renting it out, you have to be careful. In order to qualify for the deduction, you have to use the home for 14 days or more than 10% of the days when you would normally rent it out.
For example, if you rented out your home in Florida for six months between May and October (inclusive), you would still be able to classify your home as a second home for tax purposes if you stay there more than 18 days. (For convenience sake, I’m assuming six months is 180 days.) A timeshare used in this way also qualifies for the deduction.
That’s all, folks! Hopefully this has helped you understand a little bit more about property classification and home mortgages.
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More Information on second homes