2nd Home Interest Deduction?

pretty cheap jewelry · #1 (**permalink**) 01-09-2007, 02:16 PM

Am I correct in that athe interest on a second (weekend) home loan is a tax deduction?

Our primary home is not too far from being paid off

(just in time to pay for college...)

But we are planning to build a weekend place (modular) and will finance some of it especially for the interest deduction.

Thx,

bjl584 · #2 (**permalink**) 01-09-2007, 05:50 PM

Depends. Sometimes there will be certain stipulations requiring that the house be a primary residence or that at least you spend a certain amount of the year living there. You'll have to check local laws and with the person that does your taxes to see if it qualifies for a deduction.

pretty cheap jewelry · #3 (**permalink**) 01-10-2007, 06:59 AM

I thought this was a federal rule. :?

MonkeyMama · #4 (**permalink**) 01-10-2007, 07:10 AM

I does not matter if you live there as long as you don't rent it out. There are some unique rules if you have a 2nd home if you rent it out (some people have vacation homes they both use and rent).

You can deduct the interest on up to 2 homes up to the first million dollars financed.

pretty cheap jewelry · #5 (**permalink**) 01-10-2007, 07:26 AM

YAHOO! We are not going to rent it. (I used to have rental property and know those rules pretty well). THX mama!

mom-from-missouri · #6 (**permalink**) 01-10-2007, 08:52 AM

What if you lived in it Janurary - July, then got married and started renting it in August? I've been wondering on that one.

pretty cheap jewelry · #7 (**permalink**) 01-10-2007, 12:13 PM

I had a condo before marraige. We bought a house and rented the condo for 6 years.

As I recall, you declare the rental as income and choose a method to 'depreciate' the property (either over a set period or all at once). Read the rules as I can't remember the details.

However, the CATCH on rental property is this: When you sell the property you will have to pay taxes on the profit from the sales unless you use the profit to buy another rental property. Example: you bought the home for $100,000. You rent it for awhile but sell for $150,000. You pay taxes on the $50,000 at your current bracket (probably ~20%). This is $10,000!! Only by using the $50,000 for a down payment on another rental can you avoid paying so much.

What we did: We sold our rental and bit the bullet on the taxes. Our profit was enough to buy an undeveloped 5-acre in the country (no water, no power, dirt roads) plus a camper to use for a little 'house'. About $5,000 went to taxes

We have been saving successfully for 5 years to build a modular on the land in the next couple years.

Hope this info helps.