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Considerations for second homes

Posted June 04, 2014 in Advice Column, Urbandale

Urbandale and all of Iowa just lived through one of the coldest (and seemingly longest) winters in recent memory. If you’re thinking about buying a vacation home to escape to when the snow starts flying next winter, there are a number of factors you should consider. These include the associated costs, rental potential and income tax treatment.

•    Relevant costs. Mortgage payment, taxes and insurance . Unless you pay cash for your vacation home, you’ll have to pay a mortgage. Also, consider the property taxes as well as hazard and liability insurance.
•    Repairs, upkeep and fees. Consider maintenance costs (major and minor repairs). If you’re buying a condominium, you’ll have to pay a monthly fee. If you decide to rent your home, you may want to hire a professional management company.
•    Furnishings, utilities and supplies. Don’t overlook the cost of furniture, utilities, traveling to and from your home and the cost of groceries.
•    Insurance. Insure against damage and loss. Most homeowners’ policies provide limited coverage for personal property at an additional residence. Consider obtaining a dwelling and fire policy.
•    Renting your home. Renting the home out when it’s not in use can offset the cost of ownership. However, if you hire a rental broker, you’ll have to pay a fee. If you decide to show it yourself, you’ll have advertising and attorney fees.
•    Income tax consequences. If the property is for personal use only, or is rented less than 15 days per year you may deduct:
•    Property taxes
•    Qualified residence interest
•    Casualty loss deductions
•    Rental income received from such a home is not subject to tax

Property is rented out for 15 days or more per year:
•    All rental income is reportable/
•    Rental expenses must be divided between personal and rental use. Deductible expenses are limited to the amount of rental income generated.
•    You may deduct qualified residence interest, property taxes and casualty losses.

If your vacation home is considered strictly rental or business property:
•    Gross rental income is taxable to the extent it exceeds rental-related expenses.
•    All expenses can be deducted against the rental income on the property.
•    If the total rental expense exceeds the gross rental income, the resulting loss may be deducted from your personal income (subject to limitations.)

Registered Representative, Securities offered through Cambridge Investment Research, Inc. a Broker/
Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research
Advisors, Inc., a Registered Investment Advisor. Cambridge and Mokosak Advisory Group are not affiliated.

Information provided by Frank Mokosak, 2900 100th St., Suite 102, Urbandale, 515-223-5404.





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