Okoboji is the perfect place to invest in a vacation home. Billed as "Iowa's greatest vacation destination", this is a land of dramatic formerly glaciated landscapes, lush green meadows, and pristine lakefront property. On any given day in the warmer months, you can go water skiing, fishing, swimming, kayaking, or boating. There is also amazing hiking and mountain biking. In the winter, you can ski, skate, and snowshoe. It's truly a year-round paradise. But apart from the recreational and luxury advantages of owning a vacation home, there are great tax benefits too. If you're not familiar with these read on to find out whether you might qualify.
1. Home Improvement
If your second home needs renovation work, you can deduct interest on a home equity loan or a line of credit. Some of the most lucrative improvements include adding energy generators such as solar panels or wind turbines, adjustments to the home for medical purposes, and other energy-saving additions. Some of the features that could help you conserve energy include upgrading your doors and windows, installing a new insulation system, or adding high-efficiency HVAC systems. Look for Energy Star® certified additions to help you make your choices.
2. Rental Income
Did you know that you can rent out your vacation home for 2 weeks or less every year and make tax-free rental income? You can charge a weekly or nightly rate of your choice.
3. Property Tax
You're able to deduct your second home's property taxes, which are calculated by looking at the valuation of the home. The best part of this is that there's no limit to the real estate taxes that can be deducted on taxpayer-owned homes, in contrast to the mortgage interest tax deduction. Of course, it's important to note that taxpayers who are able to afford multiple homes will probably be in a higher tax bracket — meaning they'll have less options for tax savings.
If, for whatever reason, you need or want to sell your primary home, you can exclude a profit from the sale of up to $250,000 ($500,000 for married taxpayers) from taxable income. Remember that your primary residence is the property that you have used for the majority of the 5 years leading up to the sale. This is the basic way of determining your primary residence, but sometimes other information can be factored in, including your employer's location, your voter registration address, and your banking address.
This is just a brief introduction to some of the tax benefits that come with owning a vacation property. To assess your options properly, speak with a qualified real estate agent who has worked extensively with buyers and sellers of vacation homes. If you have any questions or would like to chat more about possible tax benefits of owning a second home in Okoboji, Iowa, contact Hoien Realty today!