Is it an investment property or a second home?

Hello :
I’d like to buy a second property which I intend to rent. For some reason, people keep telling me that it will be a considered a second home - not an investment property. I’m looking for some tax write-off’s. My goal is to rent it for a few years, write-off any expenses (tools, improvements, etc. ) and sell it for a profit.

I’d like to buy this as an LLC but the banks require too much of a down payment, 2 years of business reports, and a higher interest rate - so it’s not worth it.

Any suggestions or advice is greatly appreciated.

Thanks.

It would be considered an investment property and you would be entitled to all the normal tax deductions for investment properyty.

If you purchase a property as an income property and put renters in it, that’s normally what it is. If you live in it yourself more than the IRS allows, it becomes a second home.

Normally, tools are tools - not deductions. Repairs are deductions. Improvements are added to the tax base of the property and reduce your capital gain when you sell.

Find a lender that will lend on an income property and then find a property that will cashflow (there are dozens of threads here about cashflowing properties).

Stop listening to “people”! How many of these “people” know anything about REI? Most of them don’t understand the tax codes and couldn’t do their own simple taxes on a 1040EZ if their lives depended on it…Most of them don’t know horsesh-- from hog jowls.

Keith

Thanks for the good advice. Let’s take this one step further. I’m looking for tax deductions. If improvements only offset my capital gain when I sell, are there any deductions other than interest on the loan that I can deduct on my personal income taxes?

What if I purchased a truck and used it 50% of the time on business ( delivering materials, etc.) Can I deduct 50% of the payments as a business expense? Same question for tools. What if I purchased a tile saw to finish the bathroom tile work. Is the tile saw a deduction ( or do I have to depreciate it )?

Thanks,
Mike

mpt1123,

Don’t go stretching to find tax deductions just to make owning an investment property appear economical. Take a look at IRS schedule E and you will have a pretty good idea of what can and cannot be claimed as a tax deduction. Generally interest expense, real estate taxes, insurance etc. are appropriate claims. Tools or a vehicle would be considered capital assets and depreciated accordingly.

71tr is right on the money…a small tax deduction is NOT going to make a bad property good.

You probably ought to take a look at the tax laws concerning income property, but you can take:

Interest
Taxes
Advertising
Auto and travel
Cleaning and Maintenance
Commissions
Insurance
Legal and professional fees
Management Fees
Repairs
Supplies
Utilities
Depreciation

Understand please that there are income thresholds over which you cannot offset your ‘active’ income. My advice is to understand this fully or find a professional that does!

Keith