There are times when a person wants to own a bungalow near an ocean or a mountain cabin to relax and spend some quality time with his family and friends. Away from hectic routine life, it is a blessing. There are ways with the help of which vacation homes can allow you to save taxes. There are people who use vacation homes for entertainment as well as for business and rentals etc. It is vital to know about the law related to the taxes.
A person can easily buy another home if the combined debt of his residence and vacation home does not go beyond 1 million dollars. One should always keep that in mind that this particular benefit is limited to two homes only and no more. On third house interest on mortgage is not deductible. Therefore it is important to have certain knowledge about the laws related to the tax. Property tax is also an important branch to study if a person is planning to buy properties.
It has been noticed that the vacation home owned by an individual is considered as his personal residence irrespective of the fact that the person rents it up for 14 days per annum. In such a scenario, an individual can keep the rent tax free without facing any problem related to tax deductions and mortgage interest. Though he cannot reduce any kind of expense related to rent. Things can become a bit complicated if the house is rented for a longer period of time. On the basis of the breakdown between rental and personal use different rules are applied.
In case a person buys a vacation home and rents it out for 15 days or more then the tax will be applied on the rent received from it. In some cases depreciation is also deducted apart from property tax and interest. It has to be kept in mind that the second home can’t produce a tax loss to shelter other income.
Just like personal residence, rental property also has some rules to be followed as per the law. In case of rental property it has to be understood from an individual’s perspective that if the income received from rent does not cover the cost of renting the house the owner can claim a taxable loss. These rental losses are categorized as passive and they are only deducted against passive income for instance a different rental property that realizes a gain.
It is important for individuals to read and understand the laws related to the rental and personally owned properties. Similarly, if a person wants to own a vacation home or property then he has to consider about a few things which can save his income as well as allow him to cut down the expenses occurred on the house. It is very essential in order to understand the tax laws. These tax laws are applied to mobile homes, boats, apartments and other accommodate places which are owned by an individual where sleeping space, cocking facilities and bathroom facilities are included.