Q: What should we know before we buy a second home? (Cindy)

 

A: Purchasing a second home is a goal for many people.  Whether it’s a vacation retreat or a source
of rental income, there are some considerations to mull over:

 

1.     How well do you know the area? Depending on your target location, get to know the lay of the land -- from town ordinances to school ratings to planned development. All these things and more can affect you as an owner, as well as the resale value of your property if you eventually decide to sell.

 

2.    Budget for everything. A second home comes with additional maintenance costs, including homeowner’s insurance and utilities.  Create a realistic budget for its upkeep, including an emergency fund if you need a new roof or the furnace breaks down.  Don’t forget about yard maintenance – if you will not be at the home regularly, you’ll need someone else to keep up its curb appeal.

 

3.   Will you rent it out? If you plan to allow renters to use the home, you may have to claim the rental income on
your tax return.  In that case, you may also be able to deduct maintenance costs.  Speak to your tax advisor about your options.

 

4.    Will it be a true second home? When it comes to securing a mortgage for a second home, underwriting criteria are always changing. Shop around and make sure you understand the loan’s terms before you
sign.  Also, if your family uses the home exclusively, you may be able to deduct mortgage interest and property taxes
each year.  Find out how the IRS requires the handling of home-related deductions (link: http://www.irs.gov/publications/p936/ar02.html#en_US_2014_publink1000229900), and talk to your advisor about your plans.

 

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