Smith & Gesteland Quick Tip

Vacation Homes Can Bring Relaxation and Tax Relief

Owning a vacation home gives you a great opportunity to relax and have fun in the sun - or snow - depending on your preferences. To add to your enjoyment, a vacation home also can provide significant tax benefits. Here's what the Wisconsin Institute of CPAs says all current and would-be vacation homeowners should know.

Deductions For Vacation Home Owners
Most people can fully deduct mortgage interest and property taxes on their vacation homes just as they can with a personal residence. Under current tax law, interest is deductible on the first $1 million in mortgage debt used to buy, construct or improve a principal residence and second home. If you have more than one vacation home, for tax purposes, you'll want to designate as your second home the residence with the largest total deductions for mortgage interest and real estate taxes. Property taxes may be deductible no matter how many vacation homes you own.

High-income homeowners won't get the full benefit of these tax breaks, however. For 2004, most itemized deductions, including mortgage interest and property taxes, are reduced by 3 percent of the amount that your adjusted gross income exceeds $142,700 for single, joint, or head of household filers ($71,350 for married filing separately).

If you rent your vacation home, you may be entitled to extra tax benefits. But be forewarned: The rules are complex and may require the professional advice of a CPA. Basically, there are different scenarios, each with unique tax implications.