Second home repairs may be tax deductible if certain conditions are met.
Second homes include houses, condominiums, mobile homes, houseboats and recreational vehicles. The IRS considers any property with cooking facilities, a toilet and sleeping accommodations to be a home. Second homes can be a valuable source of many tax deductions, including mortgage interest, real estate taxes, insurance, repairs and other expenses. Deductibility of expenses depends on the use of the home.
Definition of Repairs
The IRS defines repairs as work that "keeps your property in good operating condition." Examples of common repairs include painting, appliances repairs and fixing leaks. The IRS considers remodeling and restoration as home improvements, not repairs. It defines improvements as work that "adds to the value of property, prolongs its useful life, or adapts it to new uses." Improvements may not be deducted as repairs and must be capitalized and depreciated. Examples of common improvements include additions, new roofs, flooring and carpeting, insulation, new HVAC systems, new plumbing systems and landscaping.
100 Percent Personal Use
A second home with only personal use limits the number of possible tax deductions for that property. Deductions allowed for personal homes include mortgage interest, property taxes and casualty losses. Mortgage interest may only be deducted for two homes. Repairs may not be deducted for personal homes. Allowed expenses may be deducted as itemized deductions on Schedule A.
100 Percent Rental Use
A second home used only as a rental property increases the number of tax deductions allowed for that property. Nearly any expense related to the rental of the property can be deducted. This includes not only expenses normally allowed on personal homes, but also repairs, insurance, utilities, property management fees, etc. Generally, rental income and expenses are reported on Schedule E. The IRS generally limits rental losses, but up to $25,000 of rental loss may offset other income if the property owner makes management decisions about the property.
Mixed Personal and Rental Use
Property with personal and rental use complicates the clear cut lines of deductibility provided for only personal-use and only rental-use homes. The IRS requires taxpayers determine the number of personal use days and the number of rental use days. Any property rented less than the greater of 14 days or 10 percent of total days used will be treated as 100 percent personal use property. Likewise, any property with personal use less than the greater of 14 days or 10 percent of total days used will be treated as 100 percent rental use property. Special rules apply when property does not meet one of these exceptions. In that case, expenses must be allocated between personal and rental use according to the ratio of days used. This includes repairs. Expenses allocable to personal use are deducted on Schedule A as allowed. Likewise, expenses allocable to rental use are deducted on Schedule E as allowed. The IRS disallows rental losses on mixed use property. Any expenses in excess of revenue may not be deducted, but may be carried forward and deducted in a subsequent year subject the rental income limitation.
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