Vacation Property Walkthrough: Conclusion

People buy vacation homes to use as family getaways, to generate income and to plan for retirement – which could be years or decades away. While most people buy vacation homes that are within a couple hundred miles of their primary residence, some adventurous types may choose to buy overseas to take advantage of lower real estate prices and lower costs of living – plus a better climate and beautiful scenery. Regardless of where you buy, it’s a serious commitment to take on another mortgage (or to pay all-cash), so be sure you’re ready – financially and emotionally – before heading to that closing table.

Keeping It Going

You may wish to hire an individual or company to check in on the property while you’re away (if you’re lucky, a friendly neighbor might be willing to do this). This is especially important if you live several hours or more away from the home and won’t be able to effectively maintain the property. 

If you’re planning to rent out the home – or if you just want someone to keep a closer eye on it – you might consider hiring a property management firm that can handle repairs, market the home, process rental requests, collect payments and the like. Of course, you’ll pay a fee their services, but it can be money well spent.

Keeping Taxes in Mind

If you do rent out the home, be sure you understand the tax implications of doing so. The IRS is very specific about what constitutes a rental – and your taxes can be greatly affected by the distinction. Good planning and record keeping go a long way toward ensuring you can take maximum advantage of the breaks your status brings, whether you're using the property for your own use or as a rental investment. Similarly, if you decide to sell the home, there are ways to limit your taxes – such as through a 1031 exchange.

Because tax implications apply to both owning and selling a vacation property, it’s always a good idea to consult with a qualified tax accountant, who can help you determine the most favorable tax strategy. That way, you can spend more time focused on enjoying your vacation home – now and in the future.