Image provided by: University of Oregon Libraries; Eugene, OR
About The daily Astorian. (Astoria, Or.) 1961-current | View Entire Issue (May 26, 2017)
BUYING a second home REAL ESTATE 101 Dreaming big? If vacation has been so much fun that you don’t want it to end, a second home might be for you. Think carefully about all the issues surrounding owning a second home, however, howeverr , because there FDQEHPDMRUÀQDQFLDOLP FDQEHPDMRUÀQDQFLDOLPSOLFDWLRQV PSOLFDWLRQV Investment property vs vs. s. vacation home The most important decision dec cision is whether your home will primarily be an n investment or a true second home. How you use u the home throughout WKH\HDUZLOOGHWHUPLQHKRZLWLVFODVVLÀHGE\WKH WKH\HDUZLOOGHWHUPLQHK RZLWLVFODVVLÀHGE\WKH IRS. A true second home e is one that only you and your immediate family us use. se. It’s tempting to help cover your expenses by renting out the home to y other vacationers while you’re not using it, but in the eyes of the IRS, you may have just become a real estate investor. investor . T a ax implications Tax Y ou o can’t write of m interest on You off f the mortgage an investment property in n the same way you do your primary residence, and a you must report the rent you receive as incom me. In certain situations, income. you may be able to of fse t the rental income with offset deductions for interest, ta axes, depreciation and taxes, home maintenance. IR RS is very interested in the The catch is that the IRS number of days you use the home for personal use each year. year . If you use the e home frequently, frequently , you can deduct only the expenses expense es that are proportional with the amount of time you rented out the home. Also, if you rent the unit below w market value to friends or family members, the IRS S might consider that to be personal use. As you can see see, your tax t situation can get complicated in a hurry C hurry. . Consult a tax adviser before you buy, buy , so you can be sure you understand how the new home will affect af fect t your bottom line at tax time. Financing Financing a second home ho ome also can get complicated. If you have e an FHA A loan on your primary residence and took t ook advantage of the low down-payment down payment option, optio on, prepare to cough up more cash for a second home than you may be expecting. Because private priv vate mortgage insurance won’t cover a second ho ome or investment property home property, , you’ll need to put down at least 20 percent. FHA A only insures loans loan s on primary residences, so your second home loan lo oan will have to be a conventional loan. This means tighter lending standards, particularly when w it comes to whether you can afford af ford the payments. paym ments. Lenders will look If your second home is used only for personal use, the mortgage interest may be fully deductible. According to the Internal Revenue Service, “The total amount you can treat as home acquisition debt at any time on your main n home and se ec ond home cannot be second mor ion ($500,000 if mar r ied more e than $1 mill million married filing separately). separ a t ely).” IRS Publication P ublica tion 936 detail. . R Read discusses the issue e in detail ead the 2015 publication irs.gov/pub/irs-pdf/p936.pdf. publica tion a at t irs .g go v/pub/irs-pdf/p936.pdff. closely at your income vs. housing expenses on both homes and may require r equire strict adherence to debt-to-income ratios. Be prepared to show that \RXULQFRPHLVVXIÀFLHQ \RXULQFRPHLVVXIÀFLHQWWRNHHSERWKKRPHVDÁRDW QWWRNHHSERWKKRPHVDÁRDW W Other considerations s Add up all of the costs cost ts before putting in an offer. of fer . Don’t forget utilities, home ho ome maintenance costs and overhead that can add up, such as furnishings and d decor. . Also think about t how much it will cost to decor travel back and forth to o the home. If you will rent out the e home while you’re away, away , don’t forget about prop property perty management fees, and be sure to research average av erage local occupancy rates s so you’re prepared for periods with no revenue. If you get in over your you ur head, your “dream” vacation home could become b the stuff stuf f of nightmares. Property Lines: At Home edition 2017 | www.dailyastorian.com | 9
