Can i use my second home as a vacation rental?

You can rent your second home as long as you live in it for 14 days a year or 10% of the time you rent it. All other second home rules still apply when you get a loan, such as being more than 50 miles from your primary residence and being suitable for year-round use. You may be wondering, can I convert my second home into a rental property if I have a mortgage on it? The short answer is “yes”, but there are several considerations. In particular, you should consider the terms of your current mortgage before converting a second home to a rental property.

Some homeowners defray their monthly mortgage expenses by renting their vacation home when they don't use it. A vacation home is classified as a second home, so mortgage interest rates will be those of a mortgage for a second home. Tierce said buyers cannot own two second homes in the same area, even if most residences in a community are considered vacation homes. Whether you're trying to buy a second home as an investment, a special getaway, or a place to retire, owning a vacation spot can be a rewarding task.

For some, owning a vacation home may seem like something reserved for the rich and famous, but that's not necessarily true. The safe harbor for a vacation or second home to qualify as property ceded in an exchange under section 1031 requires that the Exchanger has owned it for twenty-four months immediately prior to the exchange, and within each of those two 12-month periods, the Exchanger must have rented the unit in a fair market for fourteen or more days, and personal use restricted to fourteen days or ten percent of the number of days rented on the market just within that 12-month period. If you never live or even vacation in a property, but have it for investment purposes, it is a rental house. The Safe Harbor for a Vacation Home or Second Home to qualify as Replacement Property in an Exchange under Section 1031 requires the Exchanger to own the vacation home for twenty-four months immediately after the exchange, and for each of those two 12-month periods, the Exchanger must rent the unit for rent right on the market for fourteen or more days, and restrict personal use to fourteen days or ten percent of the number of days rented in a fair rental market within that 12-month period.

It has been established that vacation homes or second homes maintained by the Exchanger primarily for personal use do not qualify for tax-deferred exchange treatment under IRC §1031.It's one thing to have a second home that you only visit during the annual vacation, and it's completely different to have a second home that will be rented.

Cathleen Testa
Cathleen Testa

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