Vacation homes or second homes are the dream of many people. If you have the opportunity to invest in your dream home, there are many important factors you must research.
Before you jump into your vacation home purchase, be sure about the expenses associated with it such as maintenance, property taxes, traveling cost, etc. “A smart homeowner should be calculating the overall impact of what new investment going to change their prospective expenses,” says Jonathan Mariner, the president of TaxDay, an application that helps consumers manage and prepare their own tax information.
Following five tips will help each homeowner to plan their tax-related expenses of buying a vacation home.
1. Tax rates differ each state
Before you intend to buy a second home, investigate how much your state requires you to pay property tax each year. Certain states offer high real-estate rates than other US states and municipalities.
The states with lowest real-estate tax in 2016 were Louisiana (0.48 percent), Hawaii (0.28 percent), Delaware (0.53 percent), and Alabama (0.43 percent), according to the reports of WalletHub.
The highest real-estate tax rates in 2016 were New Hampshire (2.1 percent), New Jersey (2.29 percent), Wisconsin (1.97 percent), and Illinois (2.25 percent) respectively.
2. Relaxation of mortgage interest
You might be eligible for the deduction of mortgage interest on your primary and second home simultaneously. Federal tax rules allow mortgage interest deduction for homeowners of two residences.
Mariner says, “If you are going to finance your vacation home purchase, an interest deduction can be made for federal tax purposes.”
3. Future tax increases
Your current property rates are definitely increasing each year by a significant amount which is a peace of mind for every homeowner. “But don’t forget that property valuation comes along with an increase in property tax rates accordingly,” says Mariner.
4. Consider how much time you intend to spend there
If you’re purchasing a vacation home, consider how much time you will spend there each year. If you intend to spend at least half the year there, then it may be helpful to change your primary residence.
Katz added, “If you’re buying a vacation home in another country and plan to reside most of your time there, then becoming a citizen in your new country may be financially beneficial for you. For example, in many small countries of the Caribbean region, you can easily gain citizenship on your new purchase of real estate.”
5. Additional cost of new home
If you’re not a first-time buyer, you must know about the additional costs associated with your new purchase. For example, in the Caribbean region, there are costs like lawyers fee, alien landholders license, attorney’s fees, the cost of valuation and survey, real estate commission, land transfer taxes and others.
So, before you buy your second home, make sure to consider the other costs associated with the purchase otherwise, it may affect your budget drastically.
To keep yourself updated about property tax savings tips and tricks do visit our website United Counselors.