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Risks and Tips for Buying a Vacation Home

Consider the following factors before you start searching for a vacation property.

May 16, 2012

Most people dream about buying a perfect beach house to spend the summers or a mountain cottage to enjoy snowy winters. But before you decide to purchase a vacation home, there are several financial implications you should consider to make sure the choice is right for you. Vacation homes carry different mortgage and tax implications than a primary property, especially if you rent them out during the year.

1. The Way You Use the Home will Affect Your Mortgage Rate

Vacation homeowners who spend a great deal of time in their second property may pay nearly the same mortgage rate as they do on their primary home. However, those who rent out their vacation properties for a part of the year are considered investment homeowners, and may be required to pay more interest and make a larger down payment to secure the loan.

2. You May have to Declare Rental Income on Your Taxes

The Internal Revenue Service has a 14-day rule in place for vacation homes. You are allowed to rent out your home for no more than 14 days per year and keep the income earned from the rental without declaring it on your taxes. However, if you rent out your home for more than this period at any point during the year, you are considered a landlord by the IRS and must include the income on your tax returns.

3. You May Receive Tax Benefits

If you spend more than 14 days at a vacation home during the year or more than 10 percent of the days the home is rented out, the home counts as your primary residence. This means you can deduct mortgage interest and property taxes. However, if you do not meet these qualifications and your home is judged as a rental or investment property, you may deduct operating costs, ranging from mortgage interest and property taxes to utilities, maintenance and repair expenses. Homeowners who devote a great deal of time for both personal use and renting should consult a tax advisor to work out their deductions.

4. You May Pay Higher Insurance

Ocean-front beach properties, mountain cabins and other typical vacation homes may be located in areas that require additional insurance for weather-related disasters, such as storms, avalanches and other disasters. For this reason, research insurance costs before making big decisions about a vacation home purchase.


The information contained herein may not represent the views and opinions of Zions Bank or its affiliates and is intended for informational purposes. It is presented for general informational purposes only and does not constitute tax, legal, investment or business advice.

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