Tax Laws for Second Homes In The US

Americans buying second homes can trade down to an inexpensive house and use the profit from the sale of primary property as a down payment on a second home. The rise in prices of homes in many areas has raised a huge demand for second homes which is considered an excellent investment opportunity since nowadays second home buyers are using the equity from the sale of a primary residence to purchase bigger homes.

Prior to 1997, expensive homes were brought to avoid being taxed on profits from sales, but due to changes in tax laws for second home buyers, a person through the proceeds from the sale of a residence can purchase a less expensive house.

Here are some tax laws for second homes. Reading this will be beneficial for aspiring second home buyers:

Property Taxes:

Property taxes can be deducted on your second home. The good news is that you can deduct property taxes paid on any number of houses you own which is not like the mortgage interest rule.

Mortgage interest:

Interest on mortgage is deductible if you are using your second home instead of renting it out as a business property. 100 percent interest can be written off if used the money to acquire or improve the property.

Renting the place out:

If you are renting your property, you are dealing with different tax rules. The tax laws depend on the breakdown between rental and personal use.

If you are renting your place for 14 days, no problems, even if you are charging $5000 a week; you can pocket the cash tax free. However, renting the place out for more than 14 days means reporting all rental income to the IRS. You can deduct the rental expenses. It sometimes becomes quite complex because you need to allocate costs between the time the property is used for personal purposes and the time it is rented.

Source by Pauline Go

Do’s and Dont’s When Buying a New Home

Although buying a new home is a very exciting time, it is important to realize that you will be making a very significant and expensive life investment. Before you start shopping for a new home, it is important to be aware of the essential tasks that must be taken in order to make sure you get the home of your dreams at a price you can afford. To make buying a home easier, below is a list of the do’s and don’ts when buying a new home:

1. Do maintain a Good Credit Score: Lenders look at the credit score of a potential mortgage borrower to make sure they will be able to pay the monthly mortgage repayments. It is important that you check your credit rating for any errors and clean up any outstanding bills. Make sure you always pay your bills on time, particularly your credit cards and other loans.

2. Do get Pre-qualified: Before you start searching for a new home, it is important to get pre-qualified for a mortgage from a reputable lender. By getting pre-qualified, you will know much you will able to spend on a new home. This will help you narrow your search for a home you can afford and make legitimate offers. As well, you are more likely to receive an accepted offer if you have a prequalification certificate.

3. Do get a Licensed Real Estate Agent. Real estate agents take the hassle out of the home buying process. The agent will act according to your best interests and will find a home that meets your needs. They are also are familiar with the appropriate documentation you will need to get a mortgage, help you arrange for an appraiser, and they will know about all features of home and the surrounding community so that the price you pay is fair.

4. Do get an Attorney. An attorney, especially an attorney experienced in real estate sales, will be able to make sure the sale is legal and there are know hidden details that may cause problems in the future. They are familiar with such tasks as Title transfer, title fees, registering the property, property taxes…etc. The attorney will protect your interests.

5. Don’t take on any New Loans: While you are waiting to get qualified for a mortgage, don’t take out any new loans. It will look bad on your credit rating and it will increase your monthly expenses. Also, it will reduce the amount you can spend as a down payment on the new home.

6. Don’t max out Credit Cards: If you max out your credit cards, it will drastically reduce your credit score which will reduce your chances of getting a mortgage. If your credit cards are at their limit, consider paying them down before you apply for a mortgage. Also don’t consolidate your credit cards as it will cause your minimum payments to increase and it can hurt your credit score as it will look like you maxed out that one card.

7. Don’t Switch Jobs: Lenders look favorably on people who have stayed at one job for a long period of time. It shows your job history is consistent and safe. If you switch jobs before getting approved for a mortgage, it will negatively affect your mortgage approval.

Because buying a new home is such an important life event, it is essential that you have the knowledge of the home buying process and what steps you have to take to ensure you get the best home that meets your and your growing family needs. By doing so, it will help make sure that you live comfortable and happily for many years in a home that you love.

Source by Adriana Noton