It is the way the property is used that determines the type of property it is, not what it looks like. Based on the intent of the owner, the property could be a principal residence, income property, investment property or dealer property. A principal residence is a home that a person lives in. There can be only one declared principal residence. It is afforded certain benefits like deducting the interest and property taxes on a taxpayers' itemized deductions, up to limits. Up to $250,000 of gain for a single taxpayer and up to $500,000 for a married couple filing jointly can be excluded from income if the property is owned and used as a principal residence for two out of the previous five years. An income property is an improved property that is rented for more than 12 months. The improvements can be depreciated based on a 27.5-year life for residential property or 39-years for commercial property. This is a non-cash deduction that shelters income. When the property is … Continue reading...
Why Put More Down
The least amount in a down payment is an attractive option when people are thinking of buying a home. A common reason is to have cash available for furnishing the new home and possible unexpected expenses. Some people don't have any options because they only have enough for a minimum down payment and the closing costs. For those fortunate buyers who do have extra money available, let's look at why you'd want to do such a thing. Most loans in excess of 80% loan to value require mortgage insurance to protect the lenders for the upper portion of the loan if the home were to go into foreclosure. FHA requires an up-front premium of 1.75% of the amount borrowed plus a monthly amount of .85% on the balance. FHA mortgage insurance premium must be paid for the life of the loan. Mortgage insurance on conventional loans varies depending on the borrowers' credit and the amount of down payment being made. Unlike FHA, when the unpaid balance reaches 78% of the original amount … Continue reading...
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Before Buying A Vacation Home
There's a fine difference between a second home and a vacation home. If you are going to primarily use the home for yourself, then, it is probably a second home. If you're going to use it some during the year and rent it out the rest of the time, it is probably a vacation home. There is another possibility. If you use it for 14 days a year or less, the property could be a rental property which means you may have some benefits that are not available to vacation properties. These may seem insignificant, but the tax laws require that they are handled differently. Try to be realistic about what your expectations are for the property. Are you looking for an investment that will earn rental income and go up in value? Are you trying to find a way to lower the costs of vacations by owning the property? How do you feel about strangers using your property when you're not there? Vacation rentals are short-term which may realize higher rents, but they could also have higher than … Continue reading...