No. of Recommendations: 2
Hi Dave,

An individual can deduct the mortgage interest & taxes on up to two homes on schedule A. A second home (i.e. vacation or convenience home) does not qualify for the $250,000 single or $500,000 MFJ capital gain exclusion one can take advantage of on the sale of a principal residence. (hence, principal residence) So, you would not be loosing any great thing there.

If you were to turn the second home into a rental property then it is a business (although you do not have to incorporate or "set up" a separate entity) the mortgage interest and taxes along with many other items would be deductible on Schedule E (as opposed to Schedule A for personal homes) subject to limitations. This would be true if you owned one rental property or 100.

If you chose to set up a separate entity (i.e. corporation, LLC, partnership) then the same items would be deductible but to the entity not to you personally. If you are a partnership or LLC choosing to be taxed as a partnership then any profit/loss would flow through to you to be taxed on your personal return subject to limitations.

A good place to start would be to read the instructions to Schedule E which can be downloaded at www.irs.gov. Come on back with any questions or join us at the Tax Strategies board.

Just remember not everybody is cut out to be a landlord so consider all the options not just the tax benes.

Good Luck
cjbb



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