when the owner of a vacation home sells the property they should consider implications on capital gains in most cases these capital gains must be reported to the irs that s because vacation homes are treated as personal capital assets owners are taxed on the profits of the sale which are reported on schedule d for the year the property was sold this form accompanies the owner s annual tax return 5
the important distinction here is that this rule only pertains to vacation property as taxpayers have a substantial tax benefit when selling a primary residence when selling a primary residence the taxpayer is exempt from the first 250 000 for single filers or 500 000 for couples filing jointly 6challenges of owning vacation homemany aspects of owning a vacation home are appealing after all imagine escaping terrible weather or busy lifestyles on a whim to a second location you own however there are ongoing challenges on owning a vacation home that create financial and non financial hurdles one of the primary logistical challenges of owning a vacation home is maintenance and upkeep vacation homes require regular maintenance and upkeep even when you re not there this can be especially challenging if your vacation home is located far away from your primary residence making it difficult to handle any unexpected issues that may arise on a similar note depending on the location of your vacation home you may need to worry about issues such as hurricanes flooding or wildfires these natural disasters can be expensive to deal with and can cause significant damage to your property your vacation property may also require emergency prevention actions i e boarding up windows on a short notice something that may not be possible based on where your primary residence is located there are several emotional aspects to overcome when considering a vacation home depending on your lifestyle and schedule you may not be able to use your vacation home as much as you would like this can be frustrating especially if you have decided to invest a substantial amount of money in the property the opposite end of the spectrum occurs when its time to part ways with a vacation home similar to other forms of investments with sentimental value it may be challenging to part ways with something you already own even if it makes the most financial sense for you and your legacy also like other forms of investing there are many elements of trading psychology last as discussed in sections above there are several unique financial challenges of owning a vacation home rental income may not be stable and relying on a third party to rent your property will incur material management fees you ll also incur potentially higher costs to operate your property if you don t plan on always being on site for this reason those considering a vacation home as an investment would do well to consider the true long term financial implications of their purchase for looking for changes in vacation home trends over time the united states census bureau collects data on vacation homes 7vacation home vs investment propertysome vacation homes may be considered investment properties but not all investment properties are vacation homes as mentioned above the owner of a vacation home may use it to produce extra rental income making it an investment property when they re not using it in other cases someone who buys an investment property may do so for the sole purpose of generating income either through rent or the future resale of the property unlike vacation properties investment properties don t need to be homes they can be residential as well as commercial properties or even mixed use structures properties with both residential and retail spaces these investors may never actually step foot inside of the property however they may still be able to generate a similar income stream compared to someone who owns and personally uses a similar type of asset vacation property vs timesharevacation property and a timeshare are technically the same thing however not all forms of vacation property may have the same ownership structure as a timeshare broadly speaking most vacation homes are property that you own outright and can use whenever you want you have full control over the property and can use it as a second home or rent it out to generate income you re also responsible for all the expenses discussed above that come along with owning and maintaining the property a timeshare on the other hand is a type of vacation ownership that allows you to use a property for a specific period of time each year timeshares are usually sold in increments of one week for this reason the cost of owning this form of a vacation home is much cheaper than 100 outright ownership of a vacation home however the investor in a timeshare may only reside in the vacation home for the period of time corresponding to their ownership because of the limited time period an investor can reside in a timeshare all timeshares are often considered vacation property however because different forms of vacation properties may be accompanied by shorter or longer periods of stay not all vacation periods have the same restrictions as a timeshare 