The dream to own a vacation home in a luxury location is one that is held by a lot of individuals. It, therefore, comes as no surprise that most of the rich individuals have more than one home in different locations around the world. Apart from the rich, the average individuals also tend to seek out a location that is different from the pace of the location of the current home so as to be able to unwind at least a few weeks in a year.
Having a vacation home certainly has its pros but this also has its cons. That is, most times having a vacation home is not all beds and roses there can also be drawbacks to it. The decision for most people on whether or not to make the plunge to get a vacation home is all reliant on the intent for it.
The following are the pros and cons of owning a vacation home from different perspectives:
Tax Benefits of a Vacation Home
When looking at a vacation pros, one thing that comes to mind are the tax benefits of being able to deduct the mortgage interest that comes with it which is similar to that done for the first home. Another added benefit is the fact that the home can be rented tax-free for a period of 14 days.
A con to this is that if the home is rented for a period of more than 14 days throughout the year, then the home is now considered to be a rental property with you as the landlord. As a result, any rental income or expense from it has to be reported on Schedule E as part of your tax return.
Although you still have the option of deducting property taxes, living in the property for a period more than the stipulated 14 days means that a loss cannot be gotten from the rental.
Additional Costs of Vacation Home Ownership
A pro to owning a vacation home is that the mortgage paid on such homes is liable to better terms than that of properties gotten for the primary purpose of investment.
The con to this is that any activity associated with rental has to be monitored and in line with the agreement of the terms. Also, owning a vacation home means that there are other things like maintenance and repairs that have to be monitored which are more than that for the regular home.
The cost of this maintenance can also be high depending on the location of the vacation home. If you are not one to like constant maintenance, repairs, and checks on the property, then you have to hire a property management company which is another expense as they collect a fee of as much as 30 percent of the rental fee. Another thing that has to be considered is the fact that the property insurance for the vacation home tends to be higher than when they are used for the purpose of rental.