Most people dream of purchasing or building a vacation home. Even if the home is remarkably smaller than the primary home, the opportunity to escape to a beautiful location feels tempting. The recent tax reform may have compelled you to hold off on this purchase to see how it might affect your tax situation.
However, MarketWatch shares that vacation homes did not suffer many changes under the new tax rules. This once again makes it a viable option for you to consider.
Personal use is the primary reason people consider a vacation home, but it can also make you money. Renting out the home may change its classification under tax laws, so keep this in mind. Generally speaking, if you occupy the home for personal use for at least 14 days or 10% more than you rent it out, you may still consider it a personal second residence. If you rent out your home for more than 14 days per year and your personal use does not balance this out, it may become classified as a rental property.
From a tax perspective, the interest deduction is one of the many reasons you may wish to keep the home classified as a personal residence. However, many complex rules exist around what you can deduct and when. Working with an experienced tax professional may help ensure you manage your property in a way to maintain the benefits you prefer.
If you do decide to make your vacation home rental property, this may help it pay for itself. Consider the pros and cons carefully before making a final decision.