For those who own multiple homes, the question of allowable tax deductions becomes quite important. There are restrictions on what is deductible, and this can vary by how many homes are owned and how those homes are used. The rules for rental properties and personal residence deductions have some significant differences. When considering expenses that are deductible, there may also be a cap on the amount that is allowed, limiting the amount of the deduction.
Allowable deductions for a person’s main residence include one of the biggest expenses, the mortgage interest. This can be deducted for loans up to one million dollars, but above that amount the interest is not fully deductible. Property taxes can also be deducted, including both state and local level taxes. Other deductible expenses include mortgage insurance premiums and the cost of ground rent, which applies to homeowners living in states, such as Maryland, that effectively lease rather than sell land.
A second home that is not used as a rental can be treated the same as the owner’s first home. This means that all of the same deductions that are allowed for the main residence can also be taken for the second residence. According to the IRS, there is no requirement that you occupy the home for any part of the year in order to be able to claim the deductions.
A rental home is considered to be a business investment and is allowed many different tax deductions. Interest expense, property taxes and maintenance are all deductible. Rental houses can also be depreciated, decreasing their taxable value each year. Other deductions that apply to rental homes include any costs related to renting the home, such as advertisements, as well as fees charged by a property manager to collect the rent and oversee the property.
If one or more rental homes are owned and these are rented out for part of the year, but they are also used for personal or family use part of the year, what is deductible depends on the amount of personal use. If the house is used for most of the year as a rental, generally rental expense deductions will apply. Deductions cannot exceed rental income on such a property. If the house has more than one owner, each can take a share of the deductions according to her interest in the property.
- IRS.gov: Home Mortgage Interest Deduction (P. 2)
- "Kiplinger"; Allowable Tax Deductions on Multiple Homes; Kevin McCormally; March 2008
- IRS.gov: Rental Income and Expenses
- IRS.gov: Rental Income and Expenses (If No Personal Use of Dwelling)
- Bankrate.com; Mortgage Interest Deductions; Don Taylor, PhD, CFA; January 2002
- IRS.gov: Publication 530
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