Tax - Owning a Second Home - H&R Block                                   http://www.hrblock.com/taxes/tax_tips/tax_plannin...
Tax - Owning a Second Home - H&R Block                                    http://www.hrblock.com/taxes/tax_tips/tax_planni...
Tax - Owning a Second Home - H&R Block                                 http://www.hrblock.com/taxes/tax_tips/tax_planning/...
Tax - Owning a Second Home - H&R Block   http://www.hrblock.com/taxes/tax_tips/tax_planning/second_home.html              ...
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Tax owning a second home - h&r block

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Tax Implications of Second Home

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Tax owning a second home - h&r block

  1. 1. Tax - Owning a Second Home - H&R Block http://www.hrblock.com/taxes/tax_tips/tax_planning/second_home.html H&R Block Tax Tips & Calculators Print | E-mail | Bookmark Tax Tip 62 Tips from H&R Block Overview You can deduct interest on mortgage loans of up to $1 million used to buy, construct, or substantially improve your second home ($500,000 if married filing separately). If you use your second home as a residence and rent it for 15 days of the year or more, you must report rental income. Exclude up to $250,000 ($500,000 if married filing jointly) on the gain of the sale of your second home if you owned and used the home as your main home for at least 2 years during the 5-year period ending on the date of sale. A second home can be a house, condominium, cooperative, mobile home, house trailer or boat that has sleeping, cooking and toilet facilities. For example, an RV can qualify as a second home. If you own more than 2 homes, you must choose which home other than your main home to treat as the second home. However, you dont have to choose the same home each year. A second home is a place with sleeping, cooking, and toilet facilities. Second homes include: Houses Condominiums Cooperatives Mobile homes House trailers Recreational vehicles House boats If you own more than 2 homes, you must choose which home other than your main home to treat as the second home. However, you dont have to choose the same home as your second home each year. Second-Home Deductions If you take out a mortgage to buy, construct or substantially improve a second home, you can deduct the interest if you itemize deductions. Your deduction might be limited if either of these is true: Your mortgage is more than the fair market value of your home. The mortgages on your main home and your second home are more than $500,000 – $1 million if married filing jointly. These limits dont apply to mortgages taken out before Oct. 14, 1987 – called grandfathered debt. However, grandfathered debt reduces the $500,000 and $1 million limits. If you take out a home equity loan or line of credit on your second home, the interest is usually fully deductible. This applies unless either of these is true: The mortgage is more than the fair market value of the home minus mortgages, including grandfathered debt. The home-equity debt on your main home and second home is more than $50,000 – $100,000 if married filing jointly. Renting Your Second Home If you use the home as a residence and rent it for fewer than 15 days during the year, you dont have to1 of 4 4/11/2011 8:16 PM
  2. 2. Tax - Owning a Second Home - H&R Block http://www.hrblock.com/taxes/tax_tips/tax_planning/second_home.html report the rental income. Its considered a residence if you or a family member uses the home for personal purposes for more than the greater of: 14 days 10% of the number of days you rent the home at fair rental value You cant deduct expenses attributable to the rental, but you can deduct interest and taxes if you itemize your deductions. If you use the home as a residence and rent it for 15 days or more, you must report the rental income. You can deduct your interest and taxes as described above. But you can deduct other rental expenses – including depreciation – only up to the amount of the income minus the deductions for interest and taxes. Carry over any rental expenses not deductible under this rule to the next year, when theyre again subject to this limit. If you dont use the home as a residence, the above rules dont apply. You report your income and expenses the same as you do for other rental property. Selling Your Second Home If you sell your second home, the gain will be taxed as a: Long-term capital gain if you owned it for more than 1 year Short-term capital gain if you owned it 1 year or less You cant deduct a loss on the sale. If you rented out your second home for profit, gain usually is taxed as capital gain, and you can deduct the loss. The part of the gain attributable to depreciation is taxed at a maximum rate of 25%. If you used the home for personal purposes and rented it, you must treat the sale as part personal, part business. If the second home was your main home for at least 2 years during the 5-year period ending on the date of sale, you can exclude up to $250,000 of the gain. If married filing jointly, you can exclude up to $500,000 if you both used the home as your main home for the required period. You cant claim the exclusion if you sold another home within the 2-year period ending on the date of sale and claimed the exclusion for that sale. If you dont meet the 2-year ownership or use requirement, you can claim the exclusion only if you sell the home for these reasons: Change in health Change in place of employment An unforeseen circumstance In the above situations, the maximum exclusion will be reduced. You cant exclude any gain attributable to depreciation you claimed after May 6, 1997. If you sell a second home and use it other than as your main home (nonqualified use) at any time after 2008, the gain eligible for the exclusion might be limited. For this purpose, nonqualified use doesnt include: Any period before Jan. 1, 2009 Any period during the 5-year period thats after the last period of use as a main home A period of temporary absence of up to 2 years for reasons of health, employment, and unforeseen circumstances Any period of 10 years or less when you or your spouse was serving on qualified official extended duty People Who Read This Also Read Home Ownership Home Equity Self-employment Year-end Planning Related IRS Forms & Publications2 of 4 4/11/2011 8:16 PM
  3. 3. Tax - Owning a Second Home - H&R Block http://www.hrblock.com/taxes/tax_tips/tax_planning/second_home.html Well ask you a few questions and match you with the H&R Block tax preparation that is best for you and your tax situation. Tax Tips A-Z 2010 Tax Law Changes Address Changes Alternative Minimum Tax Amended Return American Opportunity Credit and Hope Credit American Recovery and Reinvestment Act of 2009 Audit Charitable Donations Child Tax Credit College Financial Aid Deceased Taxpayer Deductions Divorce Earned Income Credit Education Credits & Deductions Estimated Tax Payments Extension Filing Late Filing Status First Job Form 1099 Gift Tax Hobby Expenses Home Equity Home Ownership Health Savings Account IRS Forms Job Deductions Kiddie Tax Medical Expenses Military Income Exclusions Paycheck Payment Options Receiving Your Refund Recordkeeping Rental Income Retirement Planning Saving for Education Second Home Self-employment State & Local Tax Tax Calendar Unemployment and Other Assistance W-23 of 4 4/11/2011 8:16 PM
  4. 4. Tax - Owning a Second Home - H&R Block http://www.hrblock.com/taxes/tax_tips/tax_planning/second_home.html W-4 Year-end Planning Rate Tables Adoption Assistance Amounts AMT Amounts Coverdell ESA Amounts Earned Income Credit & Child Tax Credit Education Credits Exemption Allowance Amounts Health Savings Accounts Itemized Deduction Amounts Long-term Care Premium Deduction Limits Maximum Capital Gains Rates Roth IRA Contributions Savers Credit Social Security Wages and Earnings Base Standard Deductions Student Loan Interest Deductions Standard Mileage Rates Traditional IRA Deduction Amounts Tax Rates4 of 4 4/11/2011 8:16 PM

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