Category Archives: Second homes and taxes
With rates falling as they have over the past few years, a lot of people refinanced their homes and investment properties. And yet, rates keep falling to historic lows. Does it make sense to refinance again?
Those of us in real estate know that when the housing market plummets, vacation places plummet the most. Second homes are most often discretionary purchases you wait on until you feel flush with cash.
I checked with my wonderful CPA firm, Judd, Thomas Smith & Company, who says you may still deduct mortgage interest on a second home and also property taxes but watch it: that alternative minimum tax, a complicated Congressional invention to snag the rich that ends up now screwing the middle class, sometimes puts the brakes on mortgage interest or property tax deductions of any abode.
Homeowners who owe more than $1 million on their homes are under intensified scrutiny by the IRS now. Why? Because of so much confusion over deducting the interest on those over $1 million mortgages. And you can do the math — if your mortgage is more than a million, you are likely deducting a boatload of mortgage interest so pay attention because this could mean good deduction news, something we need a whole lot more of right now. I’d say only your CPA knows for sure but that may not really be the case!
Calling all reality show producers: do I have a script for you! Take a 20,000 square foot Texas mansion built by an oil tycoon and his wife – I mean, ex-wife. OK, make that 19,337 square feet with 6 bedrooms, 6 baths, two half baths including one with a musical flushing toilet, two infinity pools, 6 living rooms, Moroccan media room, a guest house with three bedrooms, a caretakers home, Longhorn, cattle and horses and a barn (with full bar) to house them. There are even deer jumping (and getting stuck on) the fence plus rabbits, coyotes, snakes, critters, three mules, a horse, donkey, catfish and brim because the home is on the shores of Lake Grapevine. In fact, there are more than 450 feet of waterfront views of the lake from a 75 foot bluff, which is not only high for, but extremely rare in, Texas.
When you have a second home, the whole point is to enjoy it and not be concerned about constant maintenance or pesky things like clogged toilets. Take a cue from those who are flush with experience: those low-flow toilets are a real pain in the rear. I know, they save water, but when you have to flush six to eight times to get things, ah, moving, or when you clog the commode countless times, how much water are you really saving?
Having a second home in New York City or state may be more expensive now than ever. For those with places in the city, the state Taxation Department will require state residents who own second homes in New York City to report the number of days they spend in the city, which will likely result in more audits for commuters. Albany, you see, wants that New York City income tax. Don’t think you are off the hook if you own a home in, say, the Hamptons, but live in Connecticut. In January. a New York tax appeals tribunal affirmed a decision that a New Canaan, Conn., resident who worked in Manhattan and owned a Long Island home, still owed the state an additional $1 million. The million is taxes on income the resident, John Barker, and his wife earned outside of New York, plus interest and penalties. Of course, Mr. Barker already was paying New York state taxes on income he was earning in the state.
If you own a second home in New York but don’t work there, you may soon be taxed like those who do, even on income made outside of the state. I love New York City and would be there every other week if I could. But I doubt I’d ever own property there, or could afford to. After a recent series of court rulings, this feeling could spread. A New Canaan, Ct. resident who works in New York City and owns a second vacation home on Long Island has been told by an appeals court he must pay income taxes in New York City and state — among the highest in the nation — on income generated outside of the state even though he and his wife live in Connecticut. The reason? They own a year ’round habitable vacation home on Long Island.