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Second Home Interest Tax Deduction

Second Home Tax Deductions

Second Home Interest is deductible

IRS Topic 505 - Interest Expense

Second Home Deductions
If you take out a mortgage to buy, construct or substantially improve a second home, the interest is deductible if you itemize deductions.

Your deduction may be limited if the mortgage exceeds the fair market value of the home or if the mortgages on your main home and your second home exceed $1 million ($500,000 if you're Married Filing Separately). These limits do not apply to mortgages taken out before Oct. 14, 1987 (called grandfathered debt), but grandfathered debt reduces the $1 million and $500,000 limits.

A second home can be a

House,
Condominium,
Cooperative,
Mobile home,
House trailer,
Recreation Vehicle
Boat

They must have sleeping, cooking and toilet facilities. If you own more than 2 homes, you must choose which home other than your main home to treat as the second home.

If you take out a home equity loan or line of credit on your second home, the interest is fully deductible unless the mortgage exceeds the fair market value of the home reduced by the amount of the mortgages, or if the mortgages of this type on your main home and second home exceed $100,000 ($50,000 if Married Filing Separately).

Real estate taxes and points you pay over the life of a mortgage to acquire a second home are deductible if you itemize deductions.

Renting Your Second Home
If you use the home as a residence and rent it for less than 15 days during the year, you don't have to report the rental income. You may not deduct any expenses attributable to the rental, but you may deduct interest and taxes if you itemize your deductions.

Selling Your Second Home
If you sell your second home, the gain will be taxed as capital gain, long-term if you owned it for more than a year and short-term if you owned it 1 year or less. A loss on the sale can't be deducted. If the second home was rented for profit, gain generally is taxed as capital gain and a loss can be deducted.