Considerations to make before buying your first vacation home.Rental options, if you want or need to lease it out. This point goes back to your initial budget. Can you afford the property outright or do you need rental income to help with the payments? The IRS stipulates what is considered personal vs. commercial property when it comes to second homes and rental income. If you rent it 14 or fewer days during the year, you keep the cash tax-free. If you decide to go the income property route, tax deductions related to an income property are real estate taxes, casualty losses, management fees, maintenance, utilities, insurance, and depreciation. Transient occupancy taxes (like a hotel tax) may apply, depending on where you live. Will this be your primary residence at some point? Tax laws changed in 2008 regarding income taxes on the sale of secondary homes. Even if you live in the home as a primary residence and sell it after two years, the profit is still taxable. But don’t let that deter you, as some vacation homes are worth more than title holder’s primary domiciles. And there are ways to minimize the tax implications in the event you sell it Rental expenses like property management fees vary. Commission fees, Management expenses (pool service, lawn service etc) related to rental activity are tax deductible. Don’t forget the monthly expenses like electric, water, internet/tv service, pest control, have a maintenance budget for repairs aside. HOA dues and rules for the neighborhood. Ask ahead of time what the policy is regarding renting out your home. Almost all gated communities have vacation rental restrictions, some of them don’t even allow any vacation rental activity. Insurance. If you use the house as commercial (rental) property, you could deduct the premiums. Casualty insurance in flood, hurricane. What will you do in emergency situations? Do you have friends that will call you if a tree falls on your roof? Or will you pay someone to look after the place while you’re away? Full service Management companies usually look after your place and report on a weekly basis.
