Home Buying in Pasadena>Question Details

First Time B…, Home Buyer in Temple City, CA

2nd home for investment

Asked by First Time Buyter, Temple City, CA Fri Feb 4, 2011

If I'm going to buy 2nd home for investment, is it that the interest rate will be higher? How about the tax treatment? Can I deduct interest from income tax? If the 1st house is under my name & the 2nd house would be under my husband's name, can the 2nd house claim to be his primary residence? Try to see how the tax works for the 2nd home.

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Mary Prout’s answer
Hi Pasadena, CA Home Buyer:
Your are correct...if you buy a second home for investment or to be rented out, the interest rate will be higher than if you were to buy a your principal residence. Your lender can confirm that fact for you.

Regarding your tax treatment, it is always best to go to your professional tax person regarding your deductions.

In the state of California property owned by a wife and her husband, it would be considered community party. Again your tax professional can confirm this for you. If your own real in the state of California and it is only in your name and you have a husband, one can assume that that piece of real estate is your separate property. is that correct? But any subsequent properties you and your husband acquire in the state of California could be considered your community property. Please verify this with your tax professional.

Hope this has been helpful to you!
Mary Prout
Broker Associate
0 votes Thank Flag Link Sun Mar 6, 2011
Investors are still getting below 5% for rental properties as long as they have good credit and larger than 20% down payment. Before you purchase, share your plan with the tax advisor including your current home payment, cost of new investment, and your short/long term intention with both properties. With all these numbers he can work out which suits you best, financially.
0 votes Thank Flag Link Tue Feb 8, 2011
The best person to get a tax question would be your accountant. But you can buy a home as a rental property. They can't both be a primary residence.
0 votes Thank Flag Link Fri Feb 4, 2011
A second home is a lending term for a home used as a vacation property...so its more of an equity investment. Do you mean a second home as a rental property?
0 votes Thank Flag Link Fri Feb 4, 2011
See a tax advisor.

Just in brief:
QUESTION: If I'm going to buy 2nd home for investment, is it that the interest rate will be higher?
ANSWER: Yes. See below. And check with a lender.

QUESTION: How about the tax treatment? Can I deduct interest from income tax?
ANSWER: Check with a tax advisor. You may be able to deduct interest. You can also deduct depreciation and various maintenance and repair expenses. To oversimplify greatly, in most cases you'll count the income from the rental property and subtract from that all your expenses. The result, which is likely to be a negative number, is then subtracted from your taxable income.

QUESTION: If the 1st house is under my name & the 2nd house would be under my husband's name, can the 2nd house claim to be his primary residence?
ANSWER: No. That's tax fraud. Besides, although you may end up paying a higher interest rate for the second property, there are a whole slew of deductions that you can't take as a primary residence. So, even if you could claim the second house as your husband's primary residence, you wouldn't want to.

Again: Consult a tax advisor.
0 votes Thank Flag Link Fri Feb 4, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
If you plan on renting out the house then we classify that as an investment porpoerty and therefore you would have higher down payment required and interest rate would be higher. As for the tax implications check with you accountant. All I would say is keep everything above board with regard to how you claim it and what the properties true purpose is, IRS needs all they can get right...
0 votes Thank Flag Link Fri Feb 4, 2011
First Time Buyter,

Any residence for which you'll obtain financing must be classified as one of these three:

1) Primary home.
2) Secondary/vacation home.
3) Investment property.

If you enter into any rental agreements, for the most part, this means the property will be an investment. Also, a secondary home must typically be located a distance away that would suggest it is not going to be used for income purposes.

In a majority of scenarios, the rates for primary and secondary homes are the same. Rates for investment homes are higher.

All of your tax questions should be directed at a tax professional and if you need a referral there I would be happy to provide one.

Thank you,

Rob Spinosa
rspinosa@rpm-mtg.com
0 votes Thank Flag Link Fri Feb 4, 2011
Find a tax advisor that knows a lot about second homes and income properties and real estate investing.

I believe you can CURRENTLY deduct mortgage interest on any number of properties.
I think you can also rent out your 2nd home and get all kinds of tax benefits (depreciation, expenses, ...) and still get the use of it for a small number of days a year without affecting those tax benefits negatively.

Talk to the tax advisor and search on the government and state tax websites - there's a lot of information there.
0 votes Thank Flag Link Fri Feb 4, 2011
You really should consult your tax advisory to be certain. Normally you will pay a higher interest rate for an investment or 2nd home. You won't get many tax deductions unless you were to rent out the house. You can claim either house as your primary residence.
0 votes Thank Flag Link Fri Feb 4, 2011
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