MYTH :
You Can Deduct the Cost of a Second Home
REALITY :
Mortgage interest and property taxes on a second home are deductible, but other expenses are not.
HOW WE KNOW :
IRS guidelines outline conditions for deducting expenses related to a second home.
KEY TAKEAWAYS :
Mortgage Interest Deduction: Mortgage interest on a second home can be deductible if it meets IRS criteria.
Property Tax Deduction: Property taxes on a second home can be deductible, but limits apply.
Stay Informed: Understanding what qualifies as a deductible expense for a second home is crucial for accurate tax filings.
One common tax myth is the belief that you can fully deduct the cost of a second home. This misconception can lead to incorrect deductions and potential issues with the IRS. Here's what you need to know to stay compliant and avoid these pitfalls.
Origin of the Myth
Home Ownership Confusion: Many people assume that all costs associated with owning a second home are fully deductible.
Lack of Clarity: There's often confusion about the specific rules for deducting expenses related to second homes.
Reality of Deducting Second Home Costs
Mortgage Interest Deduction: The IRS allows you to deduct mortgage interest on a second home, but it must meet certain criteria.
Property Tax Deduction: Property taxes on a second home can be deductible, but the total deduction for state and local taxes is limited.
IRS Guidelines on Second Home Deductions
Mortgage Interest: Mortgage interest on a second home is deductible if the loan amount is within the limits set by the IRS. As of recent changes, interest on up to $750,000 of mortgage debt is deductible for loans taken out after December 15, 2017.
Property Taxes: You can deduct property taxes on a second home, but the total deduction for state and local taxes (including property taxes) is capped at $10,000 per year.
Why the Myth Persists
General Misconceptions: Many taxpayers believe that all costs associated with a second home are deductible.
Anecdotal Advice: Misleading information and anecdotal advice from non-professional sources perpetuate the myth.
Avoiding the Pitfall
Know What’s Deductible: Clearly understand the rules for deducting expenses related to a second home.
Non-Deductible: Personal expenses such as maintenance, repairs, and improvements.
Deductible: Mortgage interest (within limits) and property taxes (subject to caps).
What You Can Deduct
Mortgage Interest: Deductible if the total mortgage debt on your first and second homes does not exceed the IRS limit.
Property Taxes: Deductible up to the $10,000 cap for state and local taxes.
Consulting a Tax Professional
Seek Professional Advice: Given the complexities of tax laws, consulting a tax professional can ensure that you are correctly identifying and claiming eligible deductions.
Accurate Records: A professional can help you maintain proper documentation and calculate the correct deductions for your second home.
