Owning a second home or investment property can provide many benefits, but also involves paying extra taxes. There are key differences in the tax rules for second homes versus investment properties that homeowners need to understand. This article will analyze those differences and provide guidance on tax planning for each scenario.
Deductibility of expenses and property taxes
Expenses and property taxes associated with a second home are generally not tax deductible, while a portion of these costs can usually be deducted for an investment property. Strategies such as renting out a second home for part of the year may allow some deductibility.
Tax treatment of rental income and capital gains
Rental income from an investment property is taxable, while second homes do not generate rental income. However, capital gains on the sale of both types of properties receive similar tax treatment under current laws.
The tax rules for second homes and investment properties have distinct differences that homeowners should consider when deciding which to purchase. Consulting with a tax professional can help maximize deductions and tax planning.