Summer came, and for many seven & # 39; ads, this means to escape for a few weeks. Enjoy the beautiful surroundings, warm sun, or cultural enrichment, it is easy to imagine how it would be nice to have a home that would allow you to do it whenever you want.
But do not let your imagination run away with you. Before you take a beach house or mountain house, think about what to buy your main home.
The first question is whether you can afford a holiday home. You covered the education expenses for their children? Safe is your pension? Your emergency fund sturdy? Do not make yourself the essentials to cover a second home, no matter how great its potential as an asset. Even if you buy a property immediately, you may not be able to gain access to equity for some time.
The second house is a greater rate than you could imagine. In addition to the purchase price, you will need to consider maintenance, security or caretaker, utilities, real estate taxes, furniture, travel expenses and other items. You may also need to pay fees for the association or assessment. And if you are going to rent a property, you will most likely need to pay for advertising, and possibly the head of the property.
In addition, insurance can be a serious & # 39; oznym consumption. Property insurance for second homes often cost more than the main residence, and can be more difficult to obtain. The larger the house will be vacant, the higher you can usually count on the contributions. Insurers may also want to pay more if you plan to rent a property. In areas where there may be a flood or hurricane, flood insurance is usually necessary to add separately.
When considering how you will finance housing, remember that the mortgage is usually more expensive than primary mortgages, because banks tend to believe that they are taking on more risk. Lenders may look at the applicant's income and not on the total assets, which could strengthen the approval of pensioners or those nearing retirement. Some buyers are planning to take loans under the equity at the main residence for the financing of other houses, but it puts your main home in the risk.
Deciding to & # 39 is a holiday home buying practical, evaluate all of these costs to get an idea of the balance cost of the property. If you plan to keep the property primarily for personal use, divide the cost by the number of days you plan to visit, so you can know whether the lease can stay at home or in the hotel financially intelligent.
Some people find a holiday home profitable means for selecting the money or use it for your personal enjoyment and to generate income. However, the calculation of income from rent to profit may not always be realistic after expenses. In great demand, such as at a ski resort or a desirable beach, your chances are a little better, especially if your property is in a three-hour drive from the large metropolitan center. But the fact remains that even though 25 percent of homeowners say that they intend to rent their second home, only 15 per cent. Those who make it advantageous to form an even smaller group.
Perhaps the most important financial factor to the & # 39 is the tax effect of the second house. The main factor that affects your personal tax situation for a holiday home, with a & # 39 is the intended use of the property. Will your second home used only by you, your friends and your family & # 39; I? Or virtually to rent it out to others who are looking for a place to rest? Specific tax rules for the rental of your holiday home can help control this decision.
First you have to determine is considered to be the residence of your holiday home or rental property. The Internal Revenue Service considered your second home residence, if you personally use it for 14 days in a year, or more than 10 per cent of the number of days when the house is rented, whichever is greater. Your use of the relative use or the use of a direct participant in the lease at less than the fair price, all defined as "private use" in determining the nature of the property.
If your holiday home is considered to be the residence of some of the franchise to be renting may be limited. Real estate for rent that IRS considers the place of residence, is not a "passive activity" for the purpose of income tax. This is significant because the losses incurred by a passive activity, can be used to compensate for the income received by another. Since the rent of the second residence is not of & # 39 is a passive activity, you can not use the rental costs that exceed your rental income to offset income from other sources.
If the IRS considers your holiday home residence, and you rent the house for at least 15 days in a given year, you must describe the division between rental and private use. You must report all income from the lease in your gross income, in addition to clearly separate your expenses between rental and personal use. Some costs, such as mortgage interest and real estate taxes are usually fully counted regardless of whether they are characterized, but communicate in different ways – for compensation from the rental income when they & # 39 is the cost of rent, either in the form of size deductions, if they are private.
Other expenses, including fees for maintenance, insurance, depreciation and other costs associated with the rental of your holiday home, only used for compensation from the rental income if they can be classified as rental expenses. (For a complete list of franchise can be found in the publication of IRS 527 "Rent housing." Distribution of rental use determines the amount of your expenses, which are used for compensation from the rental income. If you are renting a house for six months, then half of your expenses can be calculated from the rental income . Considering this section complications are likely to attract a tax professional if you intend to use your property for both personal and for the significant rental activity.
If you do not want to distribute the costs and constantly look for tenants, think to take advantage of preferential tax regime that IRS offers a short-term lease. IRS allows you to rent your holiday home in less than 15 days per year without reporting rental income in total income, thus not taxable. Of course, you will not be able to deduct expenses related to the rental of the house, because they do not report the rental income to offset. In this scenario, you lay all your mortgage payment and property tax in Schedule A.
If your second home is primarily for personal use, remember the rules of living in states where there is both your home if they do not match. Restoration of residence may be helpful, but sometimes it is difficult. For example, New York is known for having found ways to keep their former inhabitants on the tax lists. Former New York people might want to use the preferential tax climate in Florida, but it is not simply a matter of deciding on a good idea.
Although the temporary use of time may seem a better idea on paper than buying a holiday home, the reality of making it unattractive to most people. For temporary use, you pay a one-time fee and the advance payment for maintenance. Traditional temporary time assures you use of a particular device each time at the same time (usually within a week, although it varies). Some new temporary orders operate on a points system that gives users more flexibility in when and where they rest, and also leads to competition for the best unit in the most desirable times.
Although the temporary use of the time at the beginning of cheaper than buying a holiday home, it does not offer the same capital or potential price increase. In fact, you simply pay a long-term stay in advance, not investing. In addition, fees for technical services may increase, and most of the time of payment do not have built-in expiration date. Since the property for temporary use of notoriously difficult to sell, it can leave you (and possibly your children) for an indefinite period to pay fees for the property that you no longer want to use. You are probably better to allocate a portion of your portfolio for the annual holidays and not to acquire temporary use. It will assess your assets and avoid the risk to conclude itself in the transaction without the easy way out.
If you decide to purchase a holiday home, there were some opinions. Location is crucial. Select the region where you want to frequently – once a year or more – and possibly eliminate other travel, depending on your time and resources. Rural areas can sometimes increase costs; for example, insurance can be expensive if you're away from the nearest fire station. In addition, many of the desirable & # 39; recreation facilities are at increased risk of flooding or earthquakes, which further increases the potential insurance costs. If your desired property is abroad, check the laws of this country and its history of ownership to satisfy the ownership requirements of citizens, non-citizens.
Finally, think through in advance the possibility of selling your home to rest for a day. As soon as your use of the property refuses probably better off to sell it to avoid balance costs and free up capital for other purposes. You can use the house is less than you expected, or you may use it more if your children were younger, but less when they have become adults. Regardless of whether to start the process as soon as you know what you want to sell, it is very important. The housing market is still relatively weak, so it may take more time for the sale of property than you would expect.
If you rent your holiday home enough that it can be characterized as a rental property, you want to return the value of the house due to depreciation. Payment for the rental of residential real estate under the Generalized System of depreciation costs (GDS) covers 27.5 years. This capitalized expenditure can be used to offset the rental income, thereby reducing your tax invoice. Depreciation deduction can result in a net loss of property leased; However, as your second home for the lease of property, and not as a place of residence, you can reduce your other income from passive activities with the loss. Remember: When you visit a house on vacation, you can count only the depreciation allocated for the rental day.
When the time comes to sell your holiday home, please note that the IRS will treat the sale otherwise than your primary home. Your holiday home does not receive benefits from the elimination of profit in the amount of 250 000 dollars (500 000 US dollars if you want to apply jointly) as your primary residence. If you own a property of not less than 12 months, any profits from the sale will be taxed at the rate of long-term capital gains.
Also, if you reported the depreciation homes due to the use of the lease, you will need to alter the basis of the cost to determine the profit. Even if you are not required amortization payments, you will still need to reduce the base price of the house for the amount of depreciation that you could take. Part of the profit from the sale due to lower depreciation on the basis of your recovery is considered to amortization and are taxed at a rate of 25 percent.
loss scenario occurs when you sell the house for rest; you do not get any of the above exclusion of capital gains, and do not get a tax break if you understand the loss on the sale. For this reason, prior to the sale, think about converting holiday homes into primary residence. If you make your second home your primary residence for two of the five years before the sale, you will qualify for the maximum exclusion of capital gains.
If you want to save the rest house in the family & # 39; and, rather than sell, it may cause some difficulties in the real estate planning. No matter how well your children are spending, joint ownership of property can lead to disagreements and hurt feelings, because it can give one child to another house and property are less sentimental value. Even if your kids are divided without any problems, they can leave it to their children, leading to the property, divided into eight or 12 cousins who are either unaware or are very fond of each other. Those who want to keep the property, will not be able to redeem those who want to sell. In general, it can create drama, you can not anticipate.
If selling a home is too painful or impractical for a lifetime, you can direct his property to sell it and split the proceeds among his heirs. In addition, you can set up the trust in the operating costs of the property, and then give the heirs to use it in certain circumstances. Whatever you do, do your desires manifest, in your will, and discussing them with your children or heirs. Ideally, you want to attract real estate planning financial planning or a lawyer. Put everything in writing.
Holiday may be a great luxury, providing a place to get away from everyday life and build treasured memories with friends and family & # 39; it. As long as you think of it as a purchase, rather than as an investment, you can make an informed decision that is right for you. Then, if you do buy a vacation home, you will be able to approach it with realistic expectations and a good opportunity to enjoy it for years to come.