A clear explanation from Realty Times on how the IRS treats your second home. Of course, always talk to your CPA.
Question: We own our principal residence, which is located in the District of Columbia, and we also have a second home in Delaware by the ocean. I know that when we sell our principal residence, since we are married and have lived in house for many years, we are eligible for the up-to $500,000 exclusion of gain. I know that we can also deduct our main home’s mortgage interest and our real estate taxes when we file our annual income tax return. However, we do not know how to handle this for the vacation home. Can you give us some guidance?
Answer: It really depends on how you use your second home. As you will see, this is perhaps one of the most convoluted issues in our tax laws, and although it really make no sense, it has to be followed when you prepare your annual income tax returns