Monday, January 20, 2014

Tax Deductions for Multiple Houses

Mark Kennan for Demand Media writes: Having multiple homes might be a sign of wealth, but it's also a sign to the Internal Revenue Service that you may be entitled to some extra income tax deductions. The types of deductions you can take depend on whether you're writing off costs for a house you use yourself or one that you rent out.

You can deduct the mortgage interest on your second home if it meets the IRS requirements for a second home. The home must have bathroom, kitchen and sleeping facilities. Plus, you have to meet the rental limit requirements. If you don't rent it out at all, don't worry about these requirements -- your home qualifies for the deduction even if you don't use it for a single night. If you do rent it, however, you must use the home for at least 14 days or 10 percent of the time you rent it out, whichever is longer. For example, if you rent it out just for a weekend, you must use it yourself for at least 14 days during the year.


The second home mortgage interest is limited to the first $1.1 million of debt, but that includes any mortgages on your first home. For example, if you have a $800,000 mortgage and a $100,000 home equity loan on your primary residence, only the mortgage interest you pay on the first $200,000 of your second home qualifies for a write-off. Plus, you're limited to writing off the interest on only one second home at a time for tax purposes, no matter how many homes you own.


You can write off the property taxes on all of your houses, however, no matter how much you pay in total. Property taxes include state, local and even foreign taxes as long as they are charged against all property in the area at a uniform rate. On the other hand, local benefit taxes charged for improvements such as sewers or sidewalks can't be deducted unless they are for repairs to already-existing improvements. Like mortgage interest, only people itemizing their deductions can claim this tax break.


If you have rental houses, you can write off the costs as rental expenses to reduce your gross rental income. These include not only your mortgage interest, but also repairs, depreciation, insurance, and management expenses. Plus, you can write off the property taxes as a rental expenses so you get the deduction even if you don't itemize your deductions.


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