A vacation home is a second home, other than your main home, which you use to have vacations or holidays. A second home is a property that gives you access to a different location or environment.
Because your vacation home is only used at certain times of the year, many owners rent it out when they are not using it.
Key Benefits of Vacation homes:
- A Place to Relax: For most people, a vacation home is a place where they can relax and enjoy themselves without having to worry about day-to-day chores.
- Time Away in another location: A vacation home is a house that you own, but that remains empty most of the year. You typically have a primary residence that you live in most of the year, and then you go to your vacation home for a holiday or other long break.
- A Mix of Fun and Investment: The main purpose of a vacation home is to provide fun and rest for the owner or other people who use it. It can also produce additional income for the owner when it’s not being used.
- An income generator: A vacation home is a property that brings in money by either being rented out or serving as a source of revenue when it isn’t being used.
What makes a property a vacation home?
There are many different types of property. It’s important to determine how each one will be classified for income tax purposes.
The kind that a person lives in is called a principal residence, and to qualify as a principal residence, the homeowner must live there for the majority of the year.
In contrast, secondary homes are often considered vacation homes. A vacation home is a property that the owner uses only a few days or weeks each year for recreational purposes.
Apart from providing the owner with a place to get away, vacation properties can also be rented out to produce additional income when they’re not being used.
For people living in the US, it’s perfectly legal to own property in Mexico and, if rented out, it can provide an additional source of income.
For example, a couple with a principal residence in the US may own a vacation home in Mexico and visit it during the coldest months while renting it out to other people for the rest of the year.
To be classified as a residence, the home must offer sleeping space and bathroom facilities. The home must also be used for personal purposes for more than 14 days each year.
People frequently rent vacation homes for family vacations on the weekends, or vacations with friends on a shorter-term basis through services like Airbnb or Vrbo.
The vacation home tax rules for a residence will apply if those requirements are met.
Deductible expenses would include:
- Real estate taxes
- Home mortgage interest
- Expense from the vacation home: advertising, payment of commissions, legal fees, and office supplies.
- The expenses that you can deduct are any expenses that are related to the property as a rental, as well as maintenance and operating expenses.
You have to report rental income on a tax, if the property is rented for at least 15 days a year.
To deduct any expenses associated with that residence, it must be a second home. If the home is considered a primary residence, the deducted expenses cannot exceed your income from rental properties.
Vacation Home as an Investment Property
A vacation home is a home that you use for vacations. It’s also considered an investment property if it produces rental income while not in use by you.
When you buy a property for the sole purpose of making money, it’s called an investment property.
Vacation homes are often used as investment properties because of the many benefits they offer the vacation property owner including a good return on investment.
Where to buy a vacation home as an investment
Right now the best place to buy a vacation home as an investment property for Americans and Canadians is Mexico.
Warm regions of Mexico are where most Americans and Canadians buy their vacation home to escape to in the colder months.
The best market in Mexico for collecting the maximum ROI by renting out your property is Tulum Mexico. And it is growing tremendously quickly and is set to triple in market volume in the next 3 years.
This is due to infrastructure updates like the new connecting training (Mayan train) and the new Tulum airport.
Buying a vacation home as an investment in a guaranteed market such as Tulum Mexico is the ideal investment you can make right now.
If you would like to talk with a real estate agent about buying a vacation home in Tulum then click here.
To read more about the Tulum Vacation homes as an investment we suggest reading any of the following articles below: