Happy first day of summer! With the days only growing hotter and mortgage rates continuing to decline, I’m sure buying a summer beach house has become much more tempting. Especially after last week’s mortgage report from Freddie Mac, detailed in our article “Now’s The Time To Refinance Your Mortgage,” many homebuyers are jumping on the opportunity to buy a new or second home at historically low interest rates.
If you are one of the many homebuyers interested in these low rates, it’s important to keep up-to-date with tax deductions that can continue to save you loads of money on your mortgage. According to the National Association of Realtors, homeowners already save an average of $3,000 a year in taxes from mortgage-interest and property tax reductions. These savings only continue to grow with the purchase of a second home. So, if you’re in the market to buy that summer beach house, make sure you note these four tax deductions to continue saving once you make that purchase.
- 1. Mortgage Interest Deduction: When you purchase a second home, the interest on your mortgage is deductible, with a total balance of up to $1 million (not per property). In fact, this write-off covers debt acquired to pay for the primary and secondary home, as well as the cost of improving both properties.
- 2. Property Tax Deduction: Similar to deducting your mortgage interest, a second home’s property taxes can be deducted based on the assessed value of the home. Even more exciting: in most cases, there is no monetary limit on the amount of real estate taxes you deduct from your properties. Taxpayers in the highest tax bracket, however, may have fewer options for this deduction.
- 3. Home Improvement Deduction: If your second home requires improvements, make sure you deduct the interest on a home equity loan or line of credit. It’s important to note that there will be a limit on this deduction—$50,000 if filed as single or $100,000 if filed as married. Your deduction will also be limited if your mortgage is more than the fair market value of the home.
- 4. House Rental Deduction: With the purchase of a second home, you have the ability to rent your new property to other vacation-goers for a little extra cash. In fact, if you rent out for 14 days or less, the rental income is tax-free, with no limit on what you charge per day or per week!
Basically, there are many key ways to save money when you decide to buy a second home this summer. Whether you have questions about second home tax deductions, today’s mortgage rates, or the home buying process in general, make sure you stay updated by contacting one of our home mortgage specialists.