Tax & Personal Benefits Promote Gulf Shores, Fairhope and Orange Beach Vacation Homes

2013 Outlook: Vacation Homes Sales Follow Investment Property Surge

According to the National Association of REALTORS®, last year the number of sales fo...r vacation homes continued to rise following a staggering 64.5% gain in all investment home sales for 2011! The consensus has it that promising statistics are likely to repeat in 2013. And rates are at a historical low: Freddi Mac's Primary Mortgage Market Survey from Jan.3, 2013: 30-Year Fixed only 3.34%, and 15-year Fixed only 2.64%, call a mortgage broker for more info (or call me & I can recommend a few great ones to you!)

Perhaps it is an improvement in the vacation home outlook, or maybe it’s because of the recent media focus on personal tax issues…whatever the reason, it looks as if 2013 may be seen as a particularly inviting time to make a first vacation home investment. Although I don’t offer tax advice (your CPA and financial advisor take care of that), there are several general reasons it makes good sense for some people to consider investing in local vacation homes.

I found an appropriate article by Vernon Jacobs, C.P.A., who gives the following insight with a long-term goal toward retirement in mind (recommend you read the entire article here: http://www.vernonjacobs.com/vacation-home.htm):

"The tax law permits homeowners to sell their principal residence without owing a capital gains tax for the first $250,000 of gain. ($500,000 for a married couple filing jointly.) The trouble with that tax break is that you still need a place to live and you will end up using the money to pay rent. Consequently, the $250,000/$500,000 tax free gain on selling your home is a mixed tax benefit. But ... there is a way to get the full benefit of that tax break and to also end up with a residence without a mortgage, when you retire. Use some of your investment funds to buy a second home that will be adequate for your needs when you are ready to retire. Buy the home in a location where you want to live after you retire. In about 15 to 25 years you will have a second home that is all yours, with no mortgage. When you sell your current residence and make the election to take up to $250,000/$500,000 of gain tax free, you can move to your second home and use the exempt income to increase your retirement income."

Deductions on mortgage interest

The tax treatment of vacation homes depends on the number of days they are rented at fair market value (versus the number of days spent in personal family use). Even if vacation homes are rented, you may still be able to take tax deductions on the mortgage interest as you would your residence. Plus, if you rent your home for fewer than 15 days during the year, any rental income is usually tax-free.

Deduct for utilities and upkeep

If the personal use of vacation homes does not exceed 14 days per year (or 10% of the days rented at fair market value), they may well qualify as rental properties that are entitled to standard investment property deductions: utilities, repairs, upkeep, etc.

Value depreciation

Qualified vacation homes allow their owners to make applicable tax deductions for home and furnishing value depreciation.

Proper planning using professional advice will result in a balance of maximized tax and investment benefits – while still retaining the element of personal enjoyment that makes Gulf Shores, Fairhope and Orange Beach vacation homes especially attractive. Talk to your tax professional to determine if the benefits make sense for you – then give me a call to take a look at some of the best current waterfront listings in Gulf Shores, Orange Beach, or Fairhope: (251) 709-4558