Sun, Fun, and Tax Deductions: Making the Most of Your Vacation Home

13 Jun 2024

For many of us, when summer hits we have one thing on the brain: vacation. While many pull together their hotel points or look for a good deal on Airbnb, others get to benefit from vacationing in their second home.

Yes, a vacation home is glamorous and amazing when you need a gateway, but for many its true appeal is the investment aspect.

When we think of an investment property, various questions come to mind. What are the rules for taxes? Can you deduct the mortgage interest? What about the property taxes? Good questions, and just like anything tax, deductions, or financially related - the answer isn't simple.

Mortgage Interest: Double the Fun

First, let's talk about mortgage interest. If you thought only your primary residence's mortgage interest was deductible, think again! As long as your second home meets the same requirements as your main abode, you're in luck. This means you can enjoy sweet deductions on both properties.

The Million Dollar Question: How Much Can You Deduct?

If you bought your home on or before December 15, 2017, you can treat up to a whopping $1,000,000 of your home acquisition debt (or $500,000 if you're married and filing separately) across both your main and second homes. That's right, a million!

However, if you purchased your home after December 15, 2017, the deduction limit is less, but still $750,000 (or $375,000 for those filing separately).

Property Taxes: Deductions Continue

Now, let's move on to property taxes. Yes, state and local real property taxes are generally deductible. But there's a catch – not all property taxes are created equal. Here’s what you need to know to keep your deductions on track.

What Counts and What Doesn't?

‍Deductible property taxes include those based on the value of your property and levied for the general public welfare. So, if you’re paying taxes to your state or local government that fit this description, go ahead and deduct away!

However, taxes for local benefits and improvements (think sidewalks, water mains, sewer lines, parking lots) that directly increase your property’s value are a no-go. Similarly, fees for services (like trash collection or water usage) aren't deductible as property taxes either.

The $100,000 Limit

Here’s the final piece of the puzzle. The total deduction for all state and local taxes, including real and personal property taxes, as well as income or sales taxes, is capped at $10,000 (or $5,000 if married filing separately). This means you’ll need to add up all your state and local tax payments and ensure they don’t exceed this limit to fully benefit from the deductions.

So, there you have it – a fun and straightforward guide to maximizing your mortgage interest and property tax deductions on your second home. As always, it’s important to consult with a tax professional when it comes to your taxes and maximizing your deductions. Tips can help - but every situation is different, and you never want to mess around when it comes to taxes.

Join our Mailing List
No spam. Just the latest releases and tips, interesting articles, and in your inbox.
Read about our privacy policy.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.