Second-Home Deductions

Your cabin by the lake may provide you with more than rest and relaxation—it could also be a valuable source of deductions. For tax purposes, a qualified second home must have a place to sleep, a toilet, and cooking facilities, whether it be a condominium, recreational vehicle, boat, etc.

You may be able to deduct interest on a loan for a second home, provided your primary and secondary mortgages do not total more than $750,000 (or $375,000 if married filing separately). If you rent out the second home, you must use it personally for more than 14 days or for more than 10% of the rental days, whichever is greater, for it to qualify as a personal residence. In addition to mortgage interest, you may be able to deduct property taxes and prorated monthly portions of your points paid over the life of the loan.

If you rent the home for more than 14 days per year and it qualifies as a personal residence, you can also deduct the appropriate portion of upkeep, insurance, utilities, and similar costs to offset rental income. The property may be depreciated, which can help reduce your rental income without expending cash. As long as you use the place yourself for less than 14 days or 10% of the rental days, it is considered rental property, and you can claim a rental loss (subject to certain limitations).

Tax Tip

If you own a second home, your deductions will depend on whether you use the vacation home solely for enjoyment or combine business and pleasure by renting the property part time. We can help you determine what expenses are deductible, according to your unique circumstances.