Regardless of being a rental property or a holiday home, a second house can offer you many financial and personal benefits similar to your first house. The second home might even become the place where you would want to stay after your retirement. Before you purchase a second home, ensure that you know the tax implications to get the most out of your investment. Here are some of the main advantages you can enjoy via second home ownership.
If the second home you choose serves as your personal gateway, you might be waiting to own a place to unwind with your friends and family. Whether your second home is a luxury villa or a lake-side cottage, the thought of relaxing at a place outside your first home can be exciting. So, when you decide to buy a second house, ensure that know what you want to do with it. If you want it to be a home just for your holidays, then it is better you go for beach-side cottages. By doing this, you will be able to relax and have fun at the same!
The second house that you buy has the ability to pay off in many ways. Firstly, there are general financial rewards with regard to homeownership you can enjoy like price appreciation and tax-deductible interest. Apart from this, you can also use your second house as a rental income. If you own a vacation house, you can just rent it for a particular part of the year. This will help you offset the expenses of ownership. If the second house is strictly your rental property, it can be used as a source of income for your family. However tax implications are different for the second house.
You can reduce the mortgage interest that you pay on the second house, but not on the investment property. The category in which your house falls is based on the way it is used. Though you cannot deduct the mortgage interest for investment property, you will be able to deduct the operating expenses like advertising and maintenance costs that surpass the rent collected by you. The operating expenses can even include the losses that you incur while selling the house. But, neither is deductible for your second house. The property and the interest taxes will be deducted depending on the number of days your second home was used.
If you have a rental property, it can be converted into a residential property without paying taxes on it. If you are sure that your rental property is not the place where you would like to live, you can go for tax-free exchange before converting it into a residential property. If you plan carefully, you will be able to convert an office into a residential rental property, later converting that into your retirement residence. In case you have your vacation house for over ten years, it will be worth more than what you purchased it for. So, it is important that you take informed decisions when it comes to your second home.