Questions you're asking: What is considered a second home for tax purposes? (2024)

Questions you're asking: What is considered a second home for tax purposes? (1)

If you’re earning income with your second home, your tax liability can start to get complicated. Here’s what to know.

Maybe you’re already picturing it: a seaside home away from home. And maybe you’re also picturing the income it could generate as a vacation rental when you’re not using it. But before you sign on the dotted line to buy it, you’ll need to know what is considered a second home for tax purposes. Here are a few basics to be aware of.

Tax exposure depends on how much time you spend there

For the IRS to consider a second home a personal residence for the tax year, you need to use the home for more than 14 days or 10% of the days that you rent it out, whichever is greater. So if you rented the house for 40 weeks (280 days), you would need to use the home for more than 28 days.

Assuming your second home is considered a personal residence:

  • You don’t need to report rental income to the IRS if you rent the home for fewer than 15 days per year. The usual mortgage rules apply. You can’t deduct any rental expenses, such as advertising or cleaning costs.
  • In most cases, having a second home categorized as a personal residence means you may be able to deduct some or all of the interest. Interest on your first and second home mortgages up to a combined value of $750,000 (or $1 million if your mortgage started on or before December 15, 2017) may be deductible assuming each mortgage is secured by the home.

Assuming your second home is considered a rental/investment property:

  • You must report rental income to the IRS if you rent your home for more than 15 days per year and your personal use of the property does not exceed 14 days per year or 10% of the number of days that the home was rented.
  • In this case, you can deduct expenses for the rental, including maintenance and utilities.

What about property taxes?

  • If you own two houses, both of which are strictly for personal use, you owe two sets of property taxes. Currently, under the Tax Cuts and Jobs Act of 2017, there’s a $10,000 limit ($5,000 if married filing separately) for state and local taxes paid, which includes property taxes. This $10,000 maximum could limit your ability to take a deduction for property taxes on your first and second homes.
  • If the second home is considered a rental/investment property, you would have the ability to deduct all or a portion of the property tax without the above $10,000 limitation.

Note: These rules are complicated and there may be other tax implications depending on your specific situation and the location of your home. A financial or tax advisor can help you explore the details.

Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.

Questions you're asking: What is considered a second home for tax purposes? (2024)

FAQs

Questions you're asking: What is considered a second home for tax purposes? ›

For the IRS to consider a second home a personal residence for the tax year, you need to use the home for more than 14 days or 10% of the days that you rent it out, whichever is greater. So if you rented the house for 40 weeks (280 days), you would need to use the home for more than 28 days.

What does the IRS consider a second home? ›

A property is viewed as a second home by the IRS if you visit for at least 14 days per year or use the home at least 10% of the days that you rent it out. Many homeowners rent out their second home, but personal and rental use affects taxes in different ways.

What is classified as a second home? ›

A second home is a property you purchase in addition to your current home to live in for part of the year. Lenders may require proof the property is at least 50 miles from your current residence to be considered a second home. Examples of second homes include: Vacation homes.

How do I write off my second home on my taxes? ›

Are Second-Home Expenses Tax Deductible? Yes, but it depends on how you use the home. If the home counts as a personal residence, you can generally deduct your mortgage interest on loans up to $750,000, as well as up to $10,000 in state and local taxes (SALT).

What is the difference between a second home and a vacation home? ›

A second home is a dwelling you own in addition to your primary residence. A vacation home is a type of second home that owners use for leisure throughout the year but do not reside there permanently.

How does IRS check primary residence? ›

But if you live in more than one home, the IRS determines your primary residence by: Where you spend the most time. Your legal address listed for tax returns, with the USPS, on your driver's license and on your voter registration card.

What is the difference between a second home and an investment property? ›

Second home: A second home is like a vacation home — one you purchase for enjoyment purposes and live in or visit during part of the year. It is separate from your primary residence. Investment property: An investment property is one you plan to rent out with the goal of generating income.

Can a married couple have two primary residences? ›

The IRS prohibits married couples from claiming two primary residences for tax purposes. The designation of a primary residence, or “main home,” holds significant importance for homeowners due to the array of tax benefits tied to this status.

What is the advantage of owning a second home? ›

Pro: Vacation Rental Income

After all, if it's a second home, you won't be spending all of your time there. You can use this opportunity to rent your house and generate income that can be used to subside your mortgage, or even more if you are able to rent on a consistent basis.

What is a secondary home owner? ›

A secondary home is, simply put, a vacation home. You must have sole control over the property, meaning that it cannot be a full-time rental, timeshare, or managed by a property management company. Secondary homes must be suitable for year-round occupancy.

Is an RV considered a second home? ›

An RV or motorhome qualifies as a second home if it contains a kitchen, toilet and sleeping area. Available deductions include any interest on an RV loan and property taxes.

How much of a house can you write off for taxes? ›

Many U.S. homeowners can deduct what they paid in mortgage interest when they file their taxes each year. (The rule is that you can deduct a home mortgage's interest on the first $750,000 of debt, or $375,000 if you're married and filing separately.) You'll need to itemize your deductions on Schedule A (Form 1040).

Do you have to buy another home to avoid capital gains? ›

Can You Avoid Capital Gains Tax On Real Estate? It's possible to legally defer or avoid paying capital gains tax when you sell a home. You can avoid capital gains tax when you sell your primary residence by buying another house and using the 121 home sale exclusion.

What are the disadvantages of owning a second home? ›

The downside of buying a vacation home is that you will have two of everything – mortgages, property tax bills, water bills, fuel bills, etc. It also means additional responsibility for repairs and general upkeep. At the same time, owning a second home can be very rewarding in tangible and intangible ways.

Is a second home considered owner occupied? ›

No. A second home does not qualify as owner-occupied. If an owner decides later to make their second home their primary residence, then they could potentially refinance it at that point as their primary residence.

What does like a second home mean? ›

to be a place where somebody feels at home and spends a lot of time. Paul's store became my second home. It's like a second home to me.

Is the sale of a second home considered income? ›

For short-term properties, you'll typically pay the same tax rate as you would for your ordinary income. Long-term capital gains tax. If you've owned your second home for more than a year, you'll typically pay a long-term capital gains tax between 0% and 20%, depending on your earnings.

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