Vacation Homes

Tax Tips for Vacation Home Owners
By Tracy Byrnes
TheStreet.com Contributor
6/22/2007 12:39 PM EDT

I would love to own a little place at the beach someday. Of course, since I'm a Jersey girl, it would have to be down at the Jersey shore. But nothing too big, just something comfy and close to the water that my kids and I can enjoy
Sounds dreamy to me.

But these days, folks with summer homes are not so enamored.

With increasing energy costs, rising adjustable-rate mortgage payments, and the high price of gas, many folks are finding that sweet little escape at the beach is nothing but a money pit. As a result, many vacation-home owners have no choice but to consider renting out the place for a few weeks to help defray the costs.

Once you get over the notion that a stranger will be sleeping in your bed and using your toilet, it's actually not all that bad -- at least on the tax front.

A Freebie From Uncle Sam?
Depending on how long you rent out your home, the rental income may actually be tax-free.

"If you rent your vacation home for no more than 14 days during the year, the rent you receive is tax-free," says Bob Scharin, RIA senior tax analyst from Thomson Tax & Accounting, a part of the Thomson Corporation (TOC - Cramer's Take - Stockpickr - Rating).

And you don't even have to report that income on your tax return. So take the money and run! Even better, you can still can deduct your mortgage interest and real-estate taxes on "Schedule A" -- Itemized Deductions, as if you never rented out your home.

Just don't go thinking you're a landlord now. If you rent your home out for 14 days or less, you're not and you therefore cannot deduct any rental expenses.

This tax rule is nothing new. You can also rent out your principal residence for up to 14 days and pocket the money too. So if you're going on vacation anytime soon, consider renting out your home and getting your vacation paid for.

But I Want to Be a Landlord!
If you instead decide to rent out your fabulous little summer place for more than 14 days, then feel free to call yourself a landlord.

And introduce yourself to "Schedule E" -- Supplemental Income and Loss, because you'll need to report the income you receive from rentals that exceed 14 days. While you'll now owe tax on that money, you'll also be able to deduct some corresponding rental expenses.

The rules for deducting rental expenses are not entirely straightforward -- no surprise. First, you'll need to quantify the time you rent the house vs. The time you live there.

Then decide which camp you fall into:

Do you use the place as a vacation home and rent it on occasion?
Or do you rent it out mostly, and sporadically use it for personal use?

Here are the arcane technical rules for the first scenario: Your vacation home is rented for more than 14 days and your personal use exceeds the greater of 14 days, or 10% of the rental days. Translation: You use it more than you rent it.
In this case, the rental portion of your deductions also should be reported on Schedule E. Things such as mortgage interest, real-estate taxes, rental agent fees, cleaning and maintenance costs, insurance premiums, utilities and depreciation are just some of the things you can list. Basically anything out-of-pocket that helps you keep up the home can now be deducted.

But since you use the house for pleasure more than "business," your expenses cannot exceed the gross income you make from rents. However, any excess deductions can be carried over to a subsequent year.

The part of your deductions that represent the personal use of the house still should be reported on Schedule A. In very simple terms, let's presume that only 15% of the usage is rental. Then only 15% of the mortgage interest goes on Schedule E. The remaining 85% should be reported on Schedule A.

Now, if you answered "yes" to the second question, and the home is more of an rental property (not a fun-family beach home), then it should be treated accordingly(The technical rule is ridiculous: It says that if you personally used your vacation home for fewer than the greater of 15 days or 10% of the days it was rented out, it is not considered a residence. Huh?)

Basically, if you don't fall under the first scenario, your home is probably a rental property. That means your deductions are no longer limited to your rental income, so the sky's the limit. However, they still must be allocated between your personal and rental use so the appropriate portion must still go on your Schedule A. The upside is that the piece that's allocated to your rental income can be unlimited.

Big note: now that it's a rental property, you can't deduct your mortgage interest on Schedule A any more. That's because it's not a second home for you and your family -- it's an investment property.

And one more big tip: "If you are going to rent any of your homes for more than 14 days, just be sure to keep good records of both your rental and personal-use pattern, and the expenses you incur," Scharin advises.

April is a long way off, so get your documentation now. And then, if Uncle Sam ever comes knockin', you have backup.

So enjoy your beach house. Rent it out and make some money. Just be sure to change the sheets between visits.

Beaches - Disappearing Act

Jun 18, 2007 7:28 pm US/Eastern

Disappearing Beaches A Major Shore Concern
CBS 3, Philadelphia
Cydney Long
Reporting

(CBS 3) OCEAN CITY, N.J. Aside from the stretch on five mile beach, also known as the Wildwoods, Jersey Shore beaches are disappearing.

Local leaders met on Monday in attempt to figure out how to combat the growing problem.

The beaches are crucial to the South Jersey economy as tourism is the number one industry in the Garden State.

The long walk in the hot sand to your beach towel and umbrella near the surf, whether you know it or not, gets shorter every summer.

"We've probably lost 500,000 cubic yards in last two years," Avalon Emergency Manager Harry DeButts said.

Some of Avalon's north end beaches have lost the equivalent of 125 feet of sand from the dune to the water.

And that is why concerned residents, politicians, the Army core of engineers and other experts met Monday for the annual Cape May County beach conference.

"It's an effort to learn what Mother Nature is doing and to work with her, not against her," DeButts explained.

"The majority of people who come down the shore, come because they want to enjoy our beaches and our bays, if we lose that we lose that, we lose a major economic initiative in state of New Jersey," Assemblyman Jeff Van Drew said.

Ocean City, Sea Isle, and Strathmere utilize geo-tubes to create an artificial dune that will not erode.

"To protect the shore, it's simply pumping sand into a geo-textile fabric, in effect they are long sausage like shapes, and they create a barrier along the shoreline to protect the property behind it," Ocean City engineer George Savastano explained.

But they say the best alternative, though costly, is to replenish the sand and 25-year shore resident Harold Purvis may have put it best.

"The people love the beach, if the beach wasn't here, we wouldn't have any body coming," Purvis said.

Ocean City spends roughly $8-10 million a year every three years for beach replenishment.

Vacation Homes

Sales Of Vacation Properties Rise
By: Joe Register, The Bulletin
06/15/2007

Vacation home sales and investment home sales together accounted for 36 percent of all new and residential transactions. With these results, is it really a good time to buy a vacation or investment property?

In 2006, more than one million people bought vacation homes. These million home sales represent an increase of 4.7 percent over the preceding year. This according to the National Association of Realtors (NAR), industry experts who say that this data from NAR is good news for people who want to buy a vacation home.

According to Christine Karpinski, author of How to Rent Vacation Properties by Owner, 2nd Ed: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment (Kinney Pollack Press, 2007), vacation home sales and investment home sales together accounted for 36 percent of all new and residential transactions. With these results, is it really a good time to buy a vacation or investment property?
The general public tends to view the real estate market as a whole. But Karpinski points out that that there are different segments to the real estate market, and not all of the segments respond in the same manner or at the same time.

Residential sales, i.e. a house bought as a primary residence and investment purchases are two separate and distinct markets. So don't let the gloom-and-doom-sayers discourage you, and don't let the sluggish real estate market in your area do so either. You are on a whole different playing field, says Karpinski.

While vacation home sales are up, investment home sales are down by nearly 30 percent since 2005. This can be good news for vacation homebuyers because fewer speculators in the market means less demand and, as we have discussed in this column before, lower demand equals a drop in prices. If you are buying a vacation home for your personal use, not having to compete with speculators will allow you to take your time and make a thoughtful purchase that you can feel good about.

You don't have to be wealthy to purchase a vacation home. Karpinski points out that even if you cannot comfortably afford two mortgages, it is not difficult to offset the cost of the mortgage. She adds that you can rent it out part of the time and enjoy it at others. She notes in her book that if you rent out your home for only 17 weeks out of the year, you can still break even.

You may feel at the time that you purchase a vacation home that you do not want to rent it out. Even so, it is wise to make sure that such an option is available to you, should you ever in the future wish to do so. Having that safety net of being able to rent out your vacation home could prove beneficial in the future. Be sure to check to see if the homeowners association or municipality has, as many do, prohibitions against short-term rentals. Buying in an area that does not permit short-term rentals could eliminate the possibility of a safety net and could negatively affect your resale value.

Vacation homes that can be rented typically hold their value better because more people are able and willing to buy such a house.

Joe Register is a Realtor practicing in the Delaware Valley. E-Mail your questions to 4sucasa@comcast.net.or call 215-657-8100.

©The Evening Bulletin 2007

Foreclosures

ABC 'World News' Uses Questionable Data in Home Foreclosure Story
Report states foreclosures up 90 percent, although source admits its own foreclosure data is susceptible to error.

By Jeff Poor
Business & Media Institute
6/13/2007 6:36:08 PM

ABC’s “World News with Charles Gibson” reported foreclosure statistics furnished by RealtyTrac, a commonly used barometer of the real estate market, on its June 12 broadcast. “Today we learned that more than 176,000 home foreclosures were filed last month,” said Gibson. “That is more foreclosures in one month than have ever been filed before. And it’s 90 percent higher, almost double the number filed in May of 2006.”

However, the data furnished by RealtyTrac, including the data furnished in the ABC report, are often subject to misinterpretation, according to Rick Sharga, vice president of marketing at RealtyTrac.

Sharga told The (Newark, N.J.) Star-Ledger “the company decided to fine-tune its figures because too many people – including the media – were misinterpreting the foreclosure numbers.”

According to the Star-Ledger story, the data supplied by RealtyTrac count every step in the foreclosure process separately, which in some localities could be as many as three to four steps, thus counting a single foreclosure up to four times. The June 12 issue of The Star-Ledger reported that starting as early as next month, RealtyTrac would fine-tune its data and publish the number of unique filings in addition to its current report of new filings.

That would make a huge difference, the Star-Ledger’s Sam Ali wrote.

“The change is expected to dramatically decrease the number of foreclosures in any given state, according to RealtyTrac,” Ali wrote. “Under the change, New Jersey could find itself in the middle of the pack, instead of having the 12th-highest foreclosure rate in the country under RealtyTrac's current reporting system.”

This report didn’t prevent ABC News from running a story about the RealtyTrac numbers.

“After a break in foreclosures in April, real estate analysts thought they were seeing a promising sign, but not so,” said ABC’s David Muir. “The number of foreclosures is roaring back. This is when the real estate market is supposed to pick up.”

Muir blamed lenders for the spike in foreclosures. “What’s behind it?” said Muir. “Thousands of homeowners lured in by those easy-to-get mortgages, even if you had little cash and poor credit.”

Sharga, who had admitted his own numbers could be flawed, was featured in the ABC story and said “there were a lot of exotic and it turns out, fairly toxic loan types that were out in the marketplace over the last couple of years.”

ABC offered several examples of people who lost their homes to foreclosure; however, they tended to be indicative of cases of financial irresponsibility and not necessarily signs of a struggling economy.

“I would work with the electric company and pay a month late,” said Lori Johnston, a foreclosed homeowner with a second mortgage in Richardson, Texas. “But, then I would be a month behind and that next bill would be due. It just … snowballed.”

One source the ABC story cited was a real estate broker who specialized in foreclosed properties. He placed blame on the industry and not the ones who defaulted on their loans.

“I know that it’s heartbreaking to have home ownership or the dream of home ownership and then you get it and lose it,” said Kenneth Sessions, an Oakland, Calif., real estate broker. “But, I believe that a lot of these people were put in these properties that they couldn’t afford from day one.”

ABC News has even gone as far as posting a Web site seeking those who are struggling with their home loans. The site provides a form for contact information so an ABC News producer could contact them.

This is just the latest example of the media’s blaming lenders and not individuals for overly risky borrowing.

Vacation Homes and Second Homes

Second Homes for Recreation, Retirement
Houston Chronicle
June 13, 2007, 1:13PM

By EILEEN ALT POWELL AP Business Writer
© 2007 The Associated Press

NEW YORK — For years, the wealthy have bought second homes to use as vacation retreats and benefit from the appreciation of the property. Increasingly, middle class families are looking more seriously at the second home market _ especially baby boomers who want to line up a home now for retirement later.

"The demand for second homes is big and growing," said Joseph H. Badal, president and chief executive of Thornburg Mortgage in Santa Fe, N.M. "Baby boomers are feeding the second home buying now, and young families are also in the market."

But buying a second home requires a major financial commitment, so consumers need to think carefully before taking the plunge.

"Many people discover too late that the cost of a second home outweighs the benefits," Badal said. "There's the mortgage, insurance, taxes ... and maybe they don't use it as much as they thought. It really requires planning."

Although rising interest rates have been slowing home buying in general, the market for second homes has remained strong, according to figures from the National Association of Realtors.

As sales of primary residences and investment homes dropped last year, sales of vacation homes rose nearly 5 percent to a record 1.07 million from 1.02 million in 2005, the Washington, D.C.-based trade group said.

The Realtors said the typical vacation home buyer was 44 years old, came from a household with a median annual income of $102,000 and purchased a property that was about 215 miles from his or her primary residence. Nearly 80 percent of buyers said they wanted to use their second homes for vacations or as family retreats, while nearly 30 percent saw their second homes as a primary residence in the future.

Pat Dougherty, 41, who operates a dry cleaning business in Erie, Pa., and his wife Stephanie wanted a second home in a warm locale they eventually could retire to.

Two years ago, they purchased a doublewide mobile home on an acre of land beside a lake in Mooresville, N.C.

"The idea is to use it as a vacation home for now," Dougherty said. "But I'd like to retire there someday and build a home on the site."

In the meantime, the Doughertys and their three children enjoy swimming and fishing in the freshwater lake, he said. The children, who range in age from 12 to 16, also are interested in attending colleges in North Carolina, which would give the family even more reason to use their second home.

Jim Gillespie, president and chief executive of Coldwell Banker Real Estate Corp., which helped the Doughertys find their property, said second home buyers need to consider many of the same issues as first home buyers.

"First, you need to determine the best location for the property," he said. "Do you want to be on the water? Where it's warm? In a traditional retirement area like Arizona or Florida, or closer to the grandchildren?"

Then, he suggested, a would-be buyer should visit the locale several times, including in off seasons.

"Spend vacations there, even rent for short periods of time," he said. "That way you can make sure it has the culture you want, that you feel comfortable."

Craig Venezia, author of "Buying a Second Home," published by Nolo books, said families need to take a hard look at the costs before buying.

The interest rate on mortgages for second homes can be higher than on primary homes, and how much of the interest can be written off at tax time depends on factors including whether the house is used only by the owners or rented out.

"A lot of people figure they can afford the down payment but they forget about the additional costs, which can be considerable," he said. These include homeowners insurance, flood insurance, property taxes, repair and maintenance costs, a management company's fees if the property is rented out and a monthly fee if it's part of a condominium or gated community.

And while renting out a second home can help cover the cost, there can be drawbacks, Venezia said.

"People find it can take more time to manage the property than they anticipated," he said. "Suddenly what they thought would be this kickback, income-generating place has become a big burden."

Venezia also suggests families should not be pressured into buying when they're not ready _ or when the market isn't in their favor.

"I have seen some impulse buys of second homes, and it isn't pretty," he said.

Caution is especially important in those areas that have been overbuilt or where price appreciation has been rampant, including Florida and California, he said.

Holding off shouldn't be a problem, he added, because "the market is likely to be flat for a while" as rates rise and unsold home inventories are worked off.

___