The Advantages & Disadvantages of Buying a Second Home

Owning a vacation home can bring valuable tax benefits.

Owning a vacation home can bring valuable tax benefits.

Approximately 6 percent of American families own a second home. Second homes can be great things. You can vacation in them or, if you work in two areas, have a home in either place so you don't have to spend time in hotels. Alternately, you can lock down space for yourself to use in the future. For all of the benefits of a second home, though, it also has some serious drawbacks.

Doubling Ownership Benefits

When you own two homes you get twice the benefits of real estate ownership. Every year, you'll pay down your second-home loan a bit and, hopefully, have your house will go up in value. If you pay your mortgage without refinancing it, in 30 years you'll own the property free and clear. As such, second home ownership helps you build personal wealth.

Lifestyle & Maintenance

You've probably taken a few vacations and thought that you'd love to live there. Many second homes are vacation homes. It's nice to be able to go on vacation at a place that feels like home and that you can decorate and use however you want. Depending on what you buy, where you buy it and how you use it, it can be very cost-effective. On the other hand, having two homes also means that you have two lawns to mow, two roofs to replace and other such tasks. You could have someone take care of your second home for you, but that will cost you money.

Tax Deductions

If you're writing off mortgage interest and property taxes on your first house, you can probably write them off on your second house, too. As long as your mortgages on both properties don't total more than $1 million and you don't have more than an additional $100,000 in home equity debt, all of your interest is deductible. On the other hand, if your first home is relatively expensive, you might not be able to write off the interest on your second home. This makes it a lot more expensive to own. At least you can still write off the property taxes on your second home. The IRS doesn't limit them at all.

Tax on Sale

The IRS lets you exclude up to $500,000 of the profits from selling your main home from capital gains taxes if you're married and up to $250,000 if you're single. Unfortunately, you can't do this with your second home. However, if you move into your second home for two years and make it your main residence, you can exclude at least a portion of your gains. While the IRS limits your ability to use the exclusion on a second home, the longer you own it, the less the exclusion will affect you.


About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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