Second Home/Rental Property — property tax deductions

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Second Home/Rental Property — property tax deductions

Xavier Paredes
Member since 2019 · 6 posts · 2 votes

I'm helping my mother figure these things out. Sorry for any rookie questions.

She owns 2 houses. House #1 where she lives, and house #2 which she rents to my sister.  

I've read that your primary home's property taxes are deductible. So that seems to be clear.

However, I'm not sure if property taxes are deductible for house #2. Are they? 

In case any of the following matters at all: 

1. My sister's been renting house #2 for several years but this question has just come up recently because I wasn't involved—until now.

2. My mother has been retired for some years now.

3. My mother doesn't have a formal landlord-tenant contract with my sister (she does pay rent on time though).

Again, sorry for any dumb question.

TIA!

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5y
    Originally posted by @Xavier Paredes:

    I'm helping my mother figure these things out. Sorry for any rookie questions.

    She owns 2 houses. House #1 where she lives, and house #2 which she rents to my sister.  

    I've read that your primary home's property taxes are deductible. So that seems to be clear.

    However, I'm not sure if property taxes are deductible for house #2. Are they? 

    In case any of the following matters at all: 

    1. My sister's been renting house #2 for several years but this question has just come up recently because I wasn't involved—until now.

    2. My mother has been retired for some years now.

    3. My mother doesn't have a formal landlord-tenant contract with my sister (she does pay rent on time though).

    Again, sorry for any dumb question.

    TIA!

    Yes, the taxes for the second home are deductible under Sch A as an itemized deduction. But the taxed might be limited as it's capped at 10k. If this second home reported as a rental, yes taxes are deductible as expenses without limitation. 

    It's not clear if this is rented at the market and needs to be reported as a rental. You need to talk to your tax advisor. 

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  • Xavier Paredes
    OP
    Member since 2019 · 6 posts · 2 votes
    5y

    @Ashish Acharya Thanks for your reply. I forgot to mention that house #2 is fully paid for. Thus, mortgage interest deduction is obviously no longer in play—but even if there still was a mortgage, per this article, investment properties never qualify for mortgage interest deduction. 

    This still leaves us with having to distinguish the house as either a "second home" or an "investment property" which is important in the eyes of the IRS. 

    The confusion for me now is that some articles say that for a home to qualify as a second home the owner cannot rent it out for more than 180 days of the year while other articles say that it qualifies as a second home if the owner (a) uses it for at least 14 days of the year OR (b) the owner uses the home at least 10% of the days he/she rents it out (whichever results in the greater # of days).

    Sources: 

    https://www.fool.com/millionac...

    https://www.valuepenguin.com/m...


    Thanks for your help.

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