Tax Preparation online help - Taxes and Vacation Homes and second home taxes

Vacation home tax and second home taxes

Owning vacation homes and second homes may significantly reduce your taxable income by increasing your home mortgage interest deduction. If you rent your second homes or vacation homes, you may reduce your taxable income further through the deduction for rental expenses.

The difference between Residence and Domicile.

Residence and domicile have different meanings. Although, the have different meanings, residence may be the same as domicile or they may be different.

• The definiton of residence: Your residence is where you currently live.

• The definiton of domicile: Your domicile is where you are permanently established.

Vacation homes or permanent residence?

The home you are residing in may be your vacation home while your domicile is somewhere else. You can have many residences but only one domicile. Where your domicile is located can have a significant effect on your income tax and estate taxes.

Choose your domicile wisely

If possible you should try to establish your domicile in a state where the income and estate taxes will be the lowest.