Buying a second Home – Tax Advantages
How often have you paid exorbitant taxes on your income and wondered if you could reduce your tax burden? Getting reductions in taxes are one of the various advantages of buying a house, be that your first house or second house or vacation home. Of course, there are a few pre-conditions that need to be met inorder for you to take advantage of these exemptions.
As you buy a second home, you are often left wondering if you can avail enough tax breaks on this property. The rules are not so stringent and support the buyer to a large extent. You can infact give this property for rent and still claim tax exemption. If you stay at the house for atleast fourteen days in a year and leave it vacant for the rest of the year, it is classified as a home used for your stay. In case the house is being given for rent, make sure that you stay there for atleast ten percent of the duration that you would give out for rent. Lot of buyers use these conditions and buy vacation homes in good scenic locales and give them for rent during the tourist season. Structurally it is classified as a house if it possesses one bedroom, a kitchen and a bathroom.
The IRS, which governs all rules related to real estate, clearly states the exact type of expenses that classify for tax exemptions. These are normally the following:
• Mortgage insurance.
• Interest paid out on mortgage loans.
• Taxes paid out for second house.
• Expenses for upkeep and maintenance
• Depreciation on property, which is normally classified as a loss.
Out of these, the interest component of mortgage loans are clearly the most effective, as these amounts are huge and getting tax exemptions on these amounts can reduce your taxes to a huge extent.
Another important criterion that helps you to confirm if rent received on your second house gets the required tax exemptions is that, the total rent amount that you have shown related to your second house, should not exceed the total expenses related to the house. This would classify the property as a profit generating unit and hence attract taxes.
There are a few reasons that have prompted the government to throw in so many sops to encourage home purchase, be that first or second. Such advantages help the infrastructure sector boost their business, and better infrastructure is the biggest driver for a stronger and growing economy. Some under developed areas have benefited immensely from such schemes and have helped create jobs and improve the area. This has meant better places to work, better living conditions and improved standard of living.
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