Tax Breaks for the Under $100K Owner

Do you know all the tax breaks open to a second-home owner? Real estate writer Bob Bruss points out that" if you materially participate in managing your second-home rental and if your 2006 adjusted gross income is $100,000 or less, then you can deduct up to $25,000 of second-home tax loss from your other ordinary taxable income." So what's "material participation?" It includes setting standards for tenants, establishing the rent and approving tenants, even if the day-to-day management is left to others.

Like Pizza, Slice of Vacation Home Better Than None

Once upon a time, even the most mid-level middle-income folks could afford a getaway shack, cottage or cabin on a lake, by the seashore or near the mountains. The place I owned in Snowmass Village in the 1980s cost us only $100,000 for a 2-bedroom condo at one of the nation's great ski resorts. Now, the same kind of money will get you only a few weeks -- a timeshare, or fractional ownership, as the sales crowd likes to call it.

There were 188 "fractional interest" projects in the U.S. in 2005 with $2-billion in sales, a 28 percent jump over 2004, according to NorthCourse.com, a research firm that keeps tabs on the market. A newspaper article recently spotlighted a California family that paid $56,000 for the use of a two-bedroom, furnished home in the Old Greenwood development (photo above) at Truckee, near Lake Tahoe, for at least 21 days a year. With their purchase of a slice of the house comes membership in the Tahoe Mountain Club, which includes access to private restaurants and recreational and spa facilities. And of course owners can take a tax deduction on the mortgage interest.

IRA Can be Individual Retirement Abode

Anyone seeking a second home might consider buying it as an IRA -- Individual Retirement Abode. One company, Sum Total Financial Management of Chicago, says you can buy a place “outside” of an IRA while using funds from an IRA to pay for it. "This program complies with all legislative and IRA/Tax laws," the company declares. (When property is purchased “inside” the IRA it cannot be enjoyed or occupied by the investor.) Some details at at the firm's Web site.

Selling Your Vacation Home a Month at a Time

You know the market is slowing when articles start appearing about seller financing. Nevertheless, becoming your own mortgage company does bring in money on a place that you're no longer using. Here's what Inman News says: "If you no longer choose to nurse a rental or vacation cabin and want to sell it, you can spread any resulting capital gains tax over time by 'playing the back' and providing seller financing. And, you can save the new buyer, perhaps a young family that has shown interest in your getaway community, the costs of a conventional loan while negotiating a favorable interest rate for both sides."

Why Second Homes Deserve Tax Breaks

A columnist for the Hillsboro Argus in Oregon, Dolores Raymond, in the middle of a rant about immigrants, asks: "What makes a taxpayer affluent enough to own a vacation home at the beach, in addition to his primary residence, deserving of a tax credit for a second home? On the other hand, if the second home is provided as the rent free residence for a low income, elderly family member, that's another matter." The answer, I think, is that this nation believes that homeowners take better care of property than renters and wants to foster ownership. What a second home is used for is, indeed, another matter.

Last-Minute Tax Tips for Second Homes

Go to Bankrate.com for no-nonsense, quick-read guide to getting tax breaks out of your vacation or second home.

Albuquerque Dreaming?

Thinking of retiring to the desert? I lived north of Albuquerque for two years and if you don't mind summertime @ 90 degrees, it's a pleasant, rather low-tax region.The big news is the Southwest Mesa, where major home builders are moving in like bark beetles during a drought.

The average new home price reportedly has climbed to and stayed above the $200,000 mark in the city but El Rancho Grande is offering single-family, detached homes for prices starting in the mid-$100,000 range.

A Break From Uncle Sam

How to maximize tax savings from your vacation or second home? See this article. Depending on your personal use time, a bit of advance tax planning can result in saving hundreds or even thousands of tax dollars.

Go Solar, Get Tax Break

Starting on New Years Day 2006, you'll be able to get a Federal tax break when you add solar water, heat or power to your home. Even better, the Energy Tax Incentives Act allows the tax incentives for all income levels, according to Bankrate.com. Biggest solar bang for buck: installing a solar water heater. Prices have dropped and they are easier to install than they were a few years ago.

Big Tax Bill for Downsizers

Columnist Bob Bruss warns readers they'll have to pay hefty capital gains when downsizing to what might have been a second home or even a smaller new home. "The old 'rollover residence replacement rule' of Internal Revenue Code 1034 no longer applies to home sellers buying replacement homes. That tax break was repealed in 1997. Uncle Sam presumes the $500,000 principal residence sale capital gains exemption for a married couple (up to $250,000 for a single home seller) is enough....At the current 15 percent federal tax rate plus state tax" downsizers still make a "big profit on their home sale," he notes.

Pity the Poor Hyper-Rich Taxpayers

What prompted Nevada to cap second home property tax hikes to 8 percent for the next two years? A tax revolt among the extreeemly wealthy residents of Incline Village on Lake Tahoe. One property there is listed for sale at $60 million. "Some residents are paying as much as $75,000 a year in property taxes," says the Christian Science Monitor. What the paper doesn't say -- those Incliners can afford any tax hike; it's the swankiest lakeside community.

Wake Up & Collect Those Tax Dollars

"How can Berkshire County (Massachusetts) lose population and jobs for a decade, and still see a 56 percent gain in per-capita income? Could it be that even as the middle class departs, a commuter-telecommuter class has moved in, along with owners of second homes, bringing New York money into the local economy?" asks a Berkshire Eagle editorial. The papers worries about a" destructive two-tier economy." I say, How about putting higher property taxes to better use at the lcoal community college for job training?

Bet on Tax Relief in PA

More than three-quarters of the homeowners in Carbon County, PA, filed for what was called "slots-for-property-tax-cuts" recently. The Lehigh Valley area has many vacation home hideaways, but only primary homes qualified for the revenues, which come from gambling taxes. The local assessor noted that he threw out 6,700 applications; people tried to include everything from second homes to garages. Hey, you can't blame those hoping to get lucky....

Seniors Rock and Loll

A forthcoming study, "Seniors on the Move: Impacts on Cities, Suburbs and the Sunbelt" by Bill Frey of the Brookings Institution, one of the nation's leading demographers, reports that while some boomers and seniors will migrate locally or longer distances, others will simply "age in place". Already, "better-off segments... are highly sought after among cities that look to them as a means of tax base enhancement and population growth.... At the same time, less-mobile segments residing in cities, inner suburbs, and the Frostbelt are creating new challenges for communities that retain them," says the summary.

Buying Vacation Home "Bargains"

Have you always been curious about the bargains you supposedly get when you buy foreclosures, tax-deed or tax-lien properties? Do you sometimes wonder if that's how you can get a toehold in an pricey vacation home region?

I wonder, too. I have never bought anything this way. But Larry Loftis has. In today's RealEstateJournal, published by the Wall Street Journal Online, he offers these tips:

* The best deals on acquiring properties are not on tax deeds, but on tax liens where the redemption period has expired.

* At tax-deed sales, the best deals will usually occur on vacant lots, since fewer bidders will be interested in acquiring them.

* Be wary of tax-assessed values on vacant lots, because those figures may not be indicative of the lot's true fair-market value.

* If you seek to acquire a property at a tax-deed auction, you may want to invest in counties that have low minimum bids.

It sounds like Loftis knows his stuff. The Journal identifies him as a "Florida-based attorney and author of Profit By Investing in Real Estate Tax Liens (Dearborn, 2005)."

I'd love to get feedback from any of you who have used any of these strategies.

Montana Debates Higher 2d Home Taxes

Montana, land of big skies and small taxes, is pondering property tax changes that will impact the state's growing number of second-home owners.

One proposal now before legislators: out-of-state homeowners would pay a 20 percent surcharge on their Montana property taxes to help pay for fire protection.

Also proposed: constitutional amendment to help 65-and-over primary residents. It would to freeze valuation for property taxes of the principal home owned by such a person.

Lawmakers from the Flathead Valley are behind the second move. They're looking to protect long-time homeowners there who have seen their home and land values skyrocket because out-of-state residents are building costly luxury homes in their area.

Is this part of a backlash against vacation homes? I'll keep you posted.

You Can Afford Getaway home, Sez Ohio Expert

So much of what I see in magazines and newspapers dwells on high-six-figure swanky condos or seven-figure McMansions. But second homes in your vicinity might be more affordable than you think. If you're in Columbus, Ohio, why think Florida? How about Hocking Hills, or someplace near Snow Trails ski resort instead?

Real estate expert Harley Rouda Jr. of Columbus, Ohio says that with the change in tax laws and easier mortgage policies, you don't have to fork over your 401(k) to buy a weekend getaway.

Rouda's key advice:

First, how's your financial situation? Low mortgage interest rates can put a second home within your reach.

Next, ask yourself what type of property you want and where. "Vacation homes don't necessarily have to be in resort locations. They're found in every state and region, with seaside, lakeshore and mountainside locales being predictably most popular. Ohio is home to the Lake Erie islands, numerous inland lakes and popular ski resorts."

Then, inspect the areas that interest you to see if they are "good fits for long-term leisure." Rouda notes that weekend places tend to be smaller and less costly than a primary residence, but beach houses, cottages and cabins are becoming equipped with many of the same amenities we enjoy in our everyday homes.

Maine Defeats Plan to Raise Second-Home Taxes

A plan to tax second homes at a higher rate was resoundingly defeated in the Maine legislature yesterday. But the body did vote to reform property taxes in general.

According to news reports, the new legislation will boost the state's share of school funding over four years and impose spending caps on all layers of government. It also will expand two tax breaks that exempt a portion of each home from taxation and help Mainers pay their property taxes.

The higher tax on second homes had worried some legislators who felt that Mainers could be hurt if they owned camps or cottages.

"I can't support somebody's taxes going up on a hunting camp," said one representative.

Under an example used to illustrate the plan, a second-home, camp or cottage valued at $400,000, in a community with a $20 tax rate, would pay $9,000 in taxes, or an additional $1,000 more than a person whose primary residence was valued at $400,000.

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.

The British are coming

Europeans like a bargain as much as Americans do. With the dollar so weak against both the ero and the pound, more and more British visitors are taking advantage of the cheap dollar to buy vacation homes in New England and elsewhere.

According to a story in the London Evening Standard:

"The pound now buys nearly two American dollars ... and New England estate agents report a huge upsurge in British buyers looking for second homes in holiday areas where they can ski in winter and play golf and go hill walking and fishing in the summer, all within an easy drive of Boston Airport.

"Top favourites are New England ski resorts such as Killington in Vermont, the Mount Washington Valley in New Hampshire, centered around the towns of North Conway and Jackson, and the Sunday River ski resort, near the town of Bethel in Maine."

Anthea Masey reports that Peter Pietz, of estate agent Badger Realty, which has branches in Jackson and North Conway in the Mount Washington Valley, says he has sold six holiday homes to UK buyers in the past 16 months. "They usually decide to buy a holiday home after spending a holiday here."

Property prices are affordable, according to the article. It cites a marketing consultant and his American wife, who live near Guildford. They bought a four-bedroom, two-bathroom condominium triplex in North Conway through Badger Realty in August. They paid �109,000 [ about $211,000.]

"We had spent summer holidays in the area and love the scenery. We have never skied, but we are going to try cross-country skiing this winter. There are miles of beautifully maintained tracks, so it would be a pity not to give it a go. The winters here are lovely: cold and crisp with blue skies. We also like all the factory outlets around North Conway, especially as there is no state purchase tax in New Hampshire," explains the consultant. The couple will rent out their UK and as this is a year-round holiday area, there is the potential of rental income," he tells the Standard.


"People say, isn't it expensive to get there, but it isn't necessarily a lot more expensive or time-consuming than driving a car to the middle of France. Outside the peak times, we usually pay between �170[$329] and �250 [483] for our flights to Boston," the article quotes a British buyer as saying.

Ted Crawford, of Century 21 in Killington, "says homes rent well in the summer and winter, and he believes prices in the town are about to take off. 'Rental income can cover between 50 and 60 per cent of running costs. Homes in Killington offer good value because demand is only now catching up with a big increase in supply in the mid-1980s.'"

The article concludes with several examples. "Snap up a New England holiday home �124,000 [$240] " in Killington, That's for a four-bedroom, two-bathroom, alpine-style contemporary chalet with exposed beams inside. The article also highlights a three-bedroom house in Bethel, Maine for �98,000[$189,000.]