Buying a vacation home can be very different from buying a primary residence. Most important to understand is that obtaining a mortgage for a vacation home can be more difficult than obtaining a mortgage for a primary residence. In addition, homeowners who sell their vacation home must pay capital gains taxes. Here's what you need to know about vacation home mortgages and taxes.
Everything to Know About Vacation Home Taxes
Vacation homes affect a homeowner's taxes when they try to sell their property. When a vacation home is sold, the profits made on the sale of the home are called capital gains. Capital gains are taxed. How do you determine the capital gains you can expect to be taxed on when your vacation property sells? Generally speaking, you should be taxed on the difference between the amount you receive from the sale of the house and the adjusted cost base (also known as the "tax cost") of the home.
Want to control the cost of taxes when selling your vacation home? Keep receipts relating to the improvements or additions you make to the vacation property. Everything you spend on the property to improve it can be deducted from the amount you receive from the sale of the house. This reduces your tax liability.
Work with an accountant or a tax professional when you sell your home to ensure that the cost of taxes is as low as possible. If you're thinking about selling your vacation property, talk to a professional before selling. This will help ensure that you have all the paperwork you need and have taken all the steps necessary to control your costs.
Everything to Know About Your Vacation Property Mortgage
Buying a vacation home can be complicated compared to the process for buying a primary residence. Knowing the details can help the home buyer get started with the home purchasing process.
One of the things that affects the process of getting a mortgage is where the home is located. If the home is located in Canada, then most home buyers can borrow from a private mortgage insurance company. However, sometimes vacation homes are located in remote parts of Canada that are difficult to access. This can affect the marketability of the home, which in turn can make it difficult to sell. Because the location can affect the value and marketability of the home, lenders may not loan as much for the home as they would for a comparable property in an easy-to-access location.
In addition, a vacation home that's in a foreign country can also be difficult to purchase, because lenders in Canada will not loan money for vacation homes in foreign countries. A borrower who would like a mortgage for a home in a foreign country may need to work with banks that have branches in that foreign country and in Canada.
Contact a Real Estate Professional
If you're buying a vacation home, it's important to understand the financial implications of purchasing a second home. It's also important to work with a real estate professional. Your real estate agent can help you negotiate a lower price for your home, which can help make purchasing a vacation home more affordable.