Tuesday, January 18, 2005

Vacation Home and Timeshare Tax Tips

Are you aware of the tax benefits you can take advantage of when you own a second home? Here are a few guidelines, courtesy of bankrate.com:

For a second property to qualify for the home mortgage interest deduction, the taxpayer must use the additional home for personal purposes during the year.

Suppose you've got a second home you rent out all year; you never use it yourself.

Sorry -- no fun, no tax break. The property wouldn't qualify as a second home for the purpose of the home mortgage interest deduction.

However...Many taxpayers have second properties that are part personal and part rental. In this scenario, they are more likely to qualify for the tax break. The catch is that the IRS requires their personal use to exceed 14 days or 10 percent of the time it was rented, whichever time length is greater.

Consider the case of a timeshare unit. The IRS might count it as a second home instead of as a rental property if....

you are on the books to use the property for four weeks. But you use it three weeks and rent it out the fourth week. In this case, the timeshare qualifies as a second home. The time it is used for personal purposes exceeds the 14-day minimum. The 21 days is also more than 10 percent of 28 days.

Here's the equation: For every 10 days you rent a property, the IRS expects you to use it for personal purposes for one day.

Of course, don't take my word or bankrate.com's word. But do ask your CPA about claiming any deductions to which you are entitled.

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