If you have been thinking of buying South Lake Tahoe real estate and using it as a second home, you likely have been wondering how the new tax reform bill is going to impact that. In fact, you may want to re think buying a second home if the sole purpose was so you could take the deductions as those are changing in 2018. If homes for sale in South Lake Tahoe were purchased before December 15th, you can still deduct mortgage interest from a $1 million cap. However, after that, this tax bill will cap interest deductions at $750,000.
South Lake Tahoe real estate buyers should also keep in mind that a result of this legislation may drive down the prices on South Lake Tahoe homes for sale. To the point that some expect the second home markets to be impacted quite a bit. Additionally, the coastal markets that are known for being pricey are expected to see these effects whereas other markets could remain stable. Meanwhile, markets that are expected to have the most change in value are the ones where residents are likely to use the mortgage interest deduction.
Of course, buyers should not base their decision for purchasing additional homes for sale in South Lake Tahoe completely on taxes. The tax implications should not be the deal breaker on whether or not to buy a second home. In fact, the real criteria you should pay attention to are outlined below.
Make sure you can afford it
Owning homes for sale in South Lake Tahoe goes beyond the mortgage. There are maintenance costs, insurance, furnishing and utilities. You have to keep in mind that while owning South Lake Tahoe real estate is a great investment, there are extra costs that comes with buying additional properties. You aren’t financially done once you get the loan under wraps. It isn’t just the house itself, it is the stuff that goes into the house and the needs that keep it functional that cost extra. You also have to keep in mind that some neighborhoods have HOA’s or community fees for certain amenities. Second homes are generally located in a vacation/resort area atmosphere. These usually tend to cost a little more depending on where your main residence is located and what areas you look in. If you are coming from the Bay area where the average sold price is over a million, South Lake Tahoe homes for sale probably seem like a great deal! With an average sold price of just under $520,000, you can get a pretty great property. If you live in a small town where the average sold price is in the $200,000’s then South Lake Tahoe real estate may seem expensive. What is considered too expensive is really subjective compared to where your main residence is and what you already pay.
Understand the rules for how you use it
The IRS defines what type of second property this is. If you mix it up, you could be violating the IRS regulations. Currently, if you use a second property for more than 14 days out of the year, it is considered a personal residence and not a rental property. Also, the local changes to the vacation home ordinance has greatly impacted buying a home and using it as a vacation rental in South Lake Tahoe specifically. With the city and county capping the number of properties that can be used as vacation rentals, you may need to put a long term renter in a home before getting it on a vacation rental program.
If you were in the market to buy South Lake Tahoe real estate, be sure to give me a call. As a long time local South Lake Tahoe realtor, broker and owner of Pinnacle Lake Tahoe Getaways, I am very familiar with the ins and outs of buying multiple homes in the Tahoe basin. I would be happy to guide you through the journey of second home ownership.
