24 Oct Is a second home different from an investment property?

Q. If I buy another home, is there a difference tax-wise and mortgage-wise if it’s called a second home or an investment property? I would probably rent it out in the summer and stay in it for part of the off-season. So I think we could deduct a lot of expenses, right? But what do we have to do to make sure it’s legal?
— Thinking about it

A. We’re going to guess the mortgage fraud case against New York State Attorney General Letitia James may be partly behind your question.

We’re going to focus on your deductions.

Your fact pattern indicates you are contemplating the purchase of a second home that you would rent for a portion of the year, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

Whether you label it a second home or investment property has no bearing on the tax treatment, he said.

The first thing you need to do is divide your expenses associated with the property — mortgage interest, real estate taxes, insurance, repairs and maintenance, utilities, depreciation over 27.5 years, etc. — between the rental use and personal use based on the number of days used for each purpose, he said.

“You will be treated as using the second residence as a `home’ if your personal use of the property was more than the greater of 14 days or 10% of the total days it was rented,” he said. “If you meet this threshold, your allocable total rental expenses cannot exceed your rental income.”

If the rental expenses exceed the rental income, the excess expenses are carried forward to the following year subject to the same rules in the subsequent year, Becourtney said.

The personal portion of the real estate taxes can be claimed as an itemized deduction subject to the limitation on deducting State and Local Taxes (SALT), he said.

For 2025, that’s $40,000 (increased by the One Big Beautiful Bill Act) for most filers, he said. It’s phased down to $10,000 between $500,000 and $600,000 of modified adjusted gross income.

“The personal portion of the mortgage interest is calculated under the rules for deducting home mortgage interest that takes into account any mortgage interest on your principal residence in addition to a second residence and generally limits indebtedness to $750,000 in total,” Becourtney said.

You can find useful information in both IRS Publication 527, Residential Rental Property and in IRS Publication 936, Home Mortgage Interest Deduction.

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This story was originally published in October 2025.

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