This document discusses tax considerations related to owning a second home. It notes that mortgage interest on loans up to $1 million for a second home can be deducted. Rental income from a second home used as a residence for 15 or more days a year must be reported. The sale of a second home can exclude up to $250,000 in capital gains if it was a main home for two of the past five years.

1. Tax - Owning a Second Home - H&R Block http://www.hrblock.com/taxes/tax_tips/tax_planning/second_home.html
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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 don't 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 don't 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 don't 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 don't have to
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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. It's 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 can't 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 they're again subject
to this limit.
If you don't use the home as a residence, the above rules don't 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 can't 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 can't 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 don't 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 can't 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 doesn't include:
Any period before Jan. 1, 2009
Any period during the 5-year period that's 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
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