REAL ANSWERS

We are thinking about buying a vacation home. Is this a good investment and are there tax benefits?

A vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits.

Some investors plan ahead by buying a vacation home where they relax on weekends, envisioning it as their permanent retirement home later. By buying early, they are able to have payments well under way before retirement, according to William Pivar’s “Real Estate Investing From A to Z,” (Probus Publishing, Chicago, 1993).

Another benefit is the interest and property taxes are tax deductible, which helps to offset the costs.

In addition, Pivar says, “If you live in a vacation home for 14 days a year or less, you can take depreciation on it.”

Additional considerations:

--Can the household income carry two mortgage payments over the long-term?

--What are the total costs of utilities, upkeep and transportation?

--Does the investment make long-term economic sense?

One caution: An owner’s plans could change, forcing them to sell or rent their vacation home, which might be hard, depending on the local realty market.