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      06-29-2020, 02:54 PM   #1
Haywood
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What's better for tax purposes?

I'm looking at securing a second home in FL. I would look to rent it out while I am not there. Can anyone tell me the tax benefits of buying a property as a second home vs. an investment property? I keep reading pro's and con's. Also, working with lenders, they tend to want more money down and offer higher rates for investment houses. The benefits I see as an investment home are you can write off the rent even if it's unoccupied. Repairs can be written off, but not if it's a second home. If anyone has experiences with either, please let me know. Thanks in advance.
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      06-29-2020, 04:34 PM   #2
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As a second home you may get some interest deduction if you’re not already over the limit, and you may get a property tax deduction...

As a rental, all expenses are deductible at least to the extent of rental income and of course you can depreciate the property (not land value). But there are limitations on how much you can use it and qualify as a rental.

In Florida (and some other states) the property taxes are higher if you are not a resident and don’t live in the property.

Renting can be a good way to help pay for a home, but most rentals don’t have super nice furniture and decor because of damage and theft. Plus limited space for owners private stuff. I assume you’ve rented some houses/condos for vacations and can reflect on that?
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      06-29-2020, 04:44 PM   #3
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^This.

I pretty much lost all of my deductions for my second home due to the tax law changes. I could rent it out but choose not to as I don't want to risk anyone trashing my place. I bought it as new construction. I also like the convenience of being able to go out to my house whenever I wish without working around renters.
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      06-29-2020, 04:46 PM   #4
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Start here: https://www.irs.gov/newsroom/know-th...ntial-property
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      06-29-2020, 04:57 PM   #5
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Nothing to add here other than I suspect with the OP living on Long Island NY that he has probably used up the $10k SALT deduction limit on the primary home!
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      06-29-2020, 05:40 PM   #6
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Nothing to add here other than I suspect with the OP living on Long Island NY that he has probably used up the $10k SALT deduction limit on the primary home!
My chick owns the primary home. I live rent free.
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      06-29-2020, 05:45 PM   #7
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My chick owns the primary home. I live rent free.
Well there you go!
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      06-29-2020, 06:09 PM   #8
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Originally Posted by 2000cs View Post
As a second home you may get some interest deduction if youíre not already over the limit, and you may get a property tax deduction...

As a rental, all expenses are deductible at least to the extent of rental income and of course you can depreciate the property (not land value). But there are limitations on how much you can use it and qualify as a rental.

In Florida (and some other states) the property taxes are higher if you are not a resident and donít live in the property.

Renting can be a good way to help pay for a home, but most rentals donít have super nice furniture and decor because of damage and theft. Plus limited space for owners private stuff. I assume youíve rented some houses/condos for vacations and can reflect on that?
Thanks. The house is in a very affluent gated community so I don't really have to worry about people trashing the place. I actually negotiated with the furniture and it's pretty nice less a few pieces I'd change. The taxes are only $4100.
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      06-29-2020, 06:27 PM   #9
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yea so the biggest thing, if you do your taxes by the law, is that you can't simply write off everything as an expense. You will only write off a percentage as reflected in the use of the property (i.e. 60% personal, 40% rental, then you could only write off 40% of your expenses to offset the rental income). There's no magic about gaming your taxes - determination of secondary property or investment property really only matters for your mortgage options, not your tax situation (assuming you will split the use as personal and rental).
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      07-01-2020, 09:58 AM   #10
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Don't forget to check with your insurance company as well.

If you're consistently renting the house out, a normal HO policy MAY not cover a lot of things. Depending on how much income you get, it may be considered a business and need a commercial policy which are dramatically more expensive.

I'm not sure one way or the other, policies vary by state and company, so it's best to call and speak with your agent and read the policy language for yourself. I was a claim rep for State Farm in a past life.
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      07-01-2020, 12:40 PM   #11
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Originally Posted by OkieSnuffBox View Post
Don't forget to check with your insurance company as well.

If you're consistently renting the house out, a normal HO policy MAY not cover a lot of things. Depending on how much income you get, it may be considered a business and need a commercial policy which are dramatically more expensive.

I'm not sure one way or the other, policies vary by state and company, so it's best to call and speak with your agent and read the policy language for yourself. I was a claim rep for State Farm in a past life.
Is your name Jake?
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      07-01-2020, 02:07 PM   #12
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Quote:
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Is your name Jake?
Hahaha, no, not wearing khakis and polo either. I considered going into the Agent program before I left, but I really had no desire to work that much, attend events to kiss ass to get clients, etc.

I'm sure it's even worse now, when I was there in '06-'07, they were already pushing the Agents to sell more financial products vs just different insurance policies.
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      07-01-2020, 04:05 PM   #13
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Originally Posted by zx10guy View Post
^This.

I pretty much lost all of my deductions for my second home due to the tax law changes. I could rent it out but choose not to as I don't want to risk anyone trashing my place. I bought it as new construction. I also like the convenience of being able to go out to my house whenever I wish without working around renters.
I am in essentially the exact situation. The deduction eliminated the incentive to own property unless youíre buying big. Iím certain thatís part of the plan since banks are buying real estate and getting into the rental business.

Even with the previous deduction, unless you had some hefty appreciation, you really donít make money buying a home after all the interest, maintenance, taxes, insurance etc is paid. If your home appreciates at the same rate as the interest rate on your mortgage, youíre losing money.
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      07-01-2020, 05:44 PM   #14
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Quote:
Originally Posted by c1pher View Post
I am in essentially the exact situation. The deduction eliminated the incentive to own property unless youíre buying big. Iím certain thatís part of the plan since banks are buying real estate and getting into the rental business.

Even with the previous deduction, unless you had some hefty appreciation, you really donít make money buying a home after all the interest, maintenance, taxes, insurance etc is paid. If your home appreciates at the same rate as the interest rate on your mortgage, youíre losing money.
I haven't run the numbers as to if I'm losing money by holding on to second home with the loss of the deduction. I suspect I'm at least breaking even. I bought before the last boom in housing and got in at a low interest rate; 3.25% 30 years fixed in 2012. With the down payment I put in, my monthly payments are just over $1000 all in.

But what I can't put a price/value on is how this house has been my get away sanctuary with all the chaos that's been occurring in my life over the past couple of years.
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      07-01-2020, 06:08 PM   #15
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Quote:
Originally Posted by OkieSnuffBox View Post
Don't forget to check with your insurance company as well.

If you're consistently renting the house out, a normal HO policy MAY not cover a lot of things. Depending on how much income you get, it may be considered a business and need a commercial policy which are dramatically more expensive.

I'm not sure one way or the other, policies vary by state and company, so it's best to call and speak with your agent and read the policy language for yourself. I was a claim rep for State Farm in a past life.
I lived in a property for a while and then converted it to a rental. The policy WAS different, but it cost me nearly exactly the same in the two scenarios. Agreed though, this may differ based on area, insurance co., and region.
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      07-01-2020, 08:45 PM   #16
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Originally Posted by zx10guy View Post
I haven't run the numbers as to if I'm losing money by holding on to second home with the loss of the deduction. I suspect I'm at least breaking even. I bought before the last boom in housing and got in at a low interest rate; 3.25% 30 years fixed in 2012. With the down payment I put in, my monthly payments are just over $1000 all in.

But what I can't put a price/value on is how this house has been my get away sanctuary with all the chaos that's been occurring in my life over the past couple of years.
Yes, there is value in that beyond financial. I have been able to avoid the DC area for much of the pandemic, which has been a relief.
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      07-01-2020, 09:24 PM   #17
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Quote:
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Quote:
Originally Posted by 2000cs View Post
As a second home you may get some interest deduction if you’re not already over the limit, and you may get a property tax deduction...

As a rental, all expenses are deductible at least to the extent of rental income and of course you can depreciate the property (not land value). But there are limitations on how much you can use it and qualify as a rental.

In Florida (and some other states) the property taxes are higher if you are not a resident and don’t live in the property.

Renting can be a good way to help pay for a home, but most rentals don’t have super nice furniture and decor because of damage and theft. Plus limited space for owners private stuff. I assume you’ve rented some houses/condos for vacations and can reflect on that?
Thanks. The house is in a very affluent gated community so I don't really have to worry about people trashing the place. I actually negotiated with the furniture and it's pretty nice less a few pieces I'd change. The taxes are only $4100.
Is that the current owners' tax bill? If they have been in the house a long time and are Florida residents, annual increases have likely been capped due to Florida's homestead exemption. They could jump up once the house is sold.

If it were me, I would first decide whether I actually want to rent the property or not, then figure out how to take advantage of what tax deductions may be available. I wouldn't let income tax treatment dictate whether or not to rent it out to others.
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