What Defines a Second Home?

[dc]

This is a followup question from an earlier post. I'll summarize my
situation really quickly:

- Purchased another home in the same town as my primary residence for
the purposes of renovating and reselling.
- Plan to sell it after a year's time of ownership.
- Proceeds from an equity loan on primary residence paid for the other
house.
- The other house has neither been offered for sale or rent during the
period of ownership. It has been unoccupied during this period.
- Current filing status is as an individual (i.e., not a business or
other entity).

Anyway, from some discussions, there seems to be two camps on how this
should be handled. 1) This is a "second home" and I can deduct
interest and taxes on Schedule A. Capital improvements to be added to
the basis. And 2) This is an investment. An election shoud be made to
capitalize interest, taxes and other expenses. All capitalized
expenses are added to the basis.

So, any opinions on where my situation falls? Second home? Investment
property? If it's an investment property, how do I "capitalize
expenses"? Is that something only a CPA would do?

Hopefully someone will have some foresight/experience with something
like this, otherwise I may just have to run the numbers for both cases
and see which one looks better. <shrug?>

Thanks,
dc

[Frederick Lorca]

"dc" <m...@right.here.com> wrote in message
news:180320052051243717%m...@right.here.com...

> Anyway, from some discussions, there seems to be two camps on how this
> should be handled. 1) This is a "second home" and I can deduct
> interest and taxes on Schedule A. Capital improvements to be added to
> the basis. And 2) This is an investment. An election shoud be made to
> capitalize interest, taxes and other expenses. All capitalized
> expenses are added to the basis.
>
> So, any opinions on where my situation falls? Second home? Investment
> property? If it's an investment property, how do I "capitalize
> expenses"?

Temp. Reg. § 1.266-1 explains the election to capitalize taxes and carrying
charges.

http://a257.g.akamaitech.net/7/257/2422/12feb20041500/edocket.access.gpo.gov/cfr_2004/aprqtr/26cfr1.266-1.htm

Frederick Lorca

[dudley]

Haven't been following your story. Why would you not want to live in
the primary residence for a full 2 years and forgo any gains up to
$250,000 and then move into the other one for a full 2 years and make
it a primary residence and forgo the gains again, etc?

[dc]

In article <1111222261.9...@f14g2000cwb.googlegroups.com>,
dudley <whit...@charter.net> wrote:

Thanks for your note! It would be great if we could move in for 2
years. Alas, it's too small for us :-( That would be the ideal way
to handle the taxes!

dc

[dudley]

http://www.irs.gov/faqs/faq-kw122.html