Financial Boost For Second Home Owners

May 19, 2007

We’ll soon be in the vacation season, and many families will become motivated to purchase their own vacation (or second) home. Considering today’s prices of those second homes, a great deal of thought needs to focus on the financial aspects of making such a purchase. Making those added monthly payments may mean cutting back on other expenses – less money spent on such things as dining out.

There are some unique financial advantages of acquiring a second home, like tax advantages not available to any other form of investment. If it’s in a favorite vacation area, perhaps on a lake or ocean coast, the property can provide the owner family with a get-away home that’s much more cost-effective than shelling out large chunks of money for expensive hotels or resorts.

The owner also has the option to rent the property to other vacationers. This can sometimes cover all the ownership costs, or more. That added income, coupled with the property’s appreciation in value, can generate a substantial portion of the owner’s retirement savings fund. The Internal Revenue Service has some rather complex rules on renting properties on a short-term basis. Deductions depend on a variety of factors so that should be checked out and considered.

Some families have creative ways to maximize their second home’s income-producing capability. For example, they might sell their primary home and move into their second home for at least two years before selling it. That will qualify it as the family’s primary residence, so when it is sold the owner could qualify to take up to $500,000 in tax-free profits (if it’s jointly owned by a married couple), even though they took that same benefit when they sold their previous home.

Of course, a prospective buyer of a second home should consider downside factors like continuing maintenance and possible tenant problems. But an increasing number of families are deciding the personal and financial advantages of owning a second home outweigh the disadvantages.

Posted in All Things San Diego, Helpful Hints, Lending, Local Business, Real Estate, Taxes, Things of Interest