May 02, 2016
Second Home Tax Rules
You might be able to deduct the mortgage interest on your Inner Harbor luxury condo.
If your Inner Harbor luxury condo is used primarily as a second home (as opposed to renting it out as an investment property), the interest paid on your mortgage is tax deductible. You can write off 100 percent of the interest you pay on up to $1.1 million mortgaged by your first and second homes — note that that is combined, not $1.1 million on each home.
Though, the same as it goes with your primary residence, you cannot write off any of the costs associated with utilities, upkeep, or insurance… unless part of the home is used for business purposes, and then you may be able to claim a home office deduction.
The tax rules get a bit more complicated if you intend to rent out the property.
And there’s no simple explanation; in fact, that explanation comes threefold:
If the property is rented for less than 14 days each year, the income does not need to be reported to the IRS, and your Baltimore condominium is still considered a personal residence and can be treated as such, under the standard second-home rules.
If the property is rented for more than 15 days each year, and you use it for less than that amount of time yourself, the home is officially considered a rental property, and all income must be reported. You can deduct rental expenses (mortgage interest, property taxes, insurance premiums, utilities, et cetera), but you’ll want to speak with your tax preparer about factoring in the amount of time the property is used for personal versus rental use. Also, as a rental property, you may also be eligible to deduct up to $25,000 in losses each year.
If the property is rented out, but you spend more than 14 days (or more than 10 percent of the total days rented) using the home yourself, you once again have on your hands a personal residence and your rental loss deduction eligibility is null. It should be noted, too, that if any member of your family occupies the condo, those days count toward ‘personal use’ unless you collect a fair rental price.
So you want to purchase a second home in Baltimore’s Inner Harbor…
Owning a second home can be an excellent investment: Have a home of your own to visit when business brings you to Baltimore; vacation in luxurious style, or retire to the glamour and convenience of the Inner Harbor. It’s a great idea, really. But the flip side is, owning any home carries significant financial responsibility, and it is important to understand the tax implications of second-home ownership.
Take the advice here. Consult with a qualified real-estate tax specialist, and then — when you’re ready — come see for yourself why a luxury condominium at The Ritz-Carlton Residences is the place for you, the place that makes all that complicated tax code worth figuring out.