How to Qualify for the Vacation Home Tax Break

With a vacation home tax break, the idea of purchasing a second home becomes much more appealing. Many people do not realize how much money they would be able to save on their taxes by purchasing a vacation home. Here are the basics of the vacation home tax break and how you can qualify for it.

Vacation Home Tax Break

A vacation home tax break allows you to significantly reduce your taxable income. With this tax break, you will be able to deduct the mortgage interest that you pay on the property from your taxable income. Most homeowners already do this on their primary residence and benefit from it greatly at tax time. However, many people do not realize that you can actually deduct the interest from your primary and secondary homes on your taxes. This could significantly reduce the amount of money that you have to pay in taxes and provide you with a great place to vacation as well.

What Property Qualifies

There are many different types of property that would potentially qualify as a vacation home when it comes to getting a tax break. In order to qualify, a property has to have a place to sleep, a bathroom, and cooking facilities. As long as the property has these features, you will be able to count it as a vacation property. This could include a recreational vehicle, a boat or a timeshare. This provides you with a lot of flexibility when it comes to choosing a property for your vacation needs.

Time Requirements

In order for your property to qualify as a vacation property, you will have to make sure that you meet the minimum time requirements according to the IRS. If you always rent your property throughout the year, then it would not qualify as a vacation home. In this case, the property would be classified as a rental property. Even if you do not rent the property out, if you do not stay in the house enough, the IRS will consider it an investment property.

In order to qualify for the vacation home tax break, you will need to stay in the property for more than 14 days out of the year. Therefore, you need to make sure that you can set aside more than two weeks out of the year for vacationing at the property. Otherwise, you will not get to take advantage of this major tax deduction.

Tax-Free Income

Even though you have to stay in the property for more than two weeks out of the year, you can also generate tax-free income with the property. According to the IRS, you are allowed to rent the property out for 15 days out of the year without paying anything in taxes on the money that you earned. If you have a vacation house in a popular vacation destination, this could potentially be a significant source of tax-free income over the course of the year.