Taxes & residency

Important Part : TAX

If your property used by you, as a second home (rather than renting it out) interest on the mortgage is deductible within the same limits as the interest on the mortgage on your first home.

You can write off 100 percent of the interest you pay on up to $1.1 million of debt secured by your first and second homes and used to acquire or improve the properties. (That's a total of $1.1 million of debt, not $1.1 million on each home.)

If you rent out the place

Lots of second-home buyers rent out the property part of the year . Very different tax rules apply depending on the breakdown between personal and rental use.

If you rent the place out for 14 or fewer days during the year, you can pocket the rental income tax-free. Even if you're charging $50,000 a week, the IRS doesn't want to hear about it. The house is considered a personal residence, so you deduct mortgage interest and property taxes under the standard rules for a second home.

Longer rentals mean different rules

Rent for more than 14 days and you must report all rental income. You also get to deduct rental expenses, and that gets complicated because you need to allocate costs between the time the property is used for personal purposes, and the time it is rented.

Consider this example

If you and your family use a beach house for 30 days during the year and it's rented for 120 days, 80 percent (120 divided by 150) of your mortgage interest and property taxes, insurance premiums, utilities and other costs would be rental expenses. The entire amount you pay a property manager would be deductible, too. And you could claim depreciation deductions based on 80 percent of the value of the house. If a house is worth $200,000 (not counting the value of the land) and you're depreciating 80 percent, a full year's depreciation deduction would be about $5,800.

You can always deduct expenses up to the level of rental income you report. But what if costs exceed what you take in? Whether a loss can shelter other income depends on two things: how much you use the property yourself and how high your income is.

Your use can be limited

If you use the place more than 14 days, or more than 10 percent of the number of days it is rented—whichever is more—it is considered a personal residence and the rental loss can't be deducted. (But because it is a personal residence, the interest that doesn't count as a rental expense—20 percent in our example—can be deducted as a personal expense.)

Why maintenance pays

If you limit personal use to 14 days or 10 percent, the vacation home is considered a rental property and up to $25,000 in losses might be deductible each year. That's why lots of vacation homeowners hold down leisure use and spend lots of time "maintaining" the property.

Fix-up days don't count as personal use. The tax savings from the loss (up to $7,000 a year if you're in the 28 percent tax bracket) helps pay for the vacation home. Unfortunately, holding down personal use means you have to forfeit the write-off for the portion of mortgage interest that does not qualify as either a rental or personal-residence expense.

Passive losses

We say such losses might be deductible because real estate losses are considered "passive losses" by the tax law. And passive losses are generally not deductible. But there's an exception that might protect you.

If your Adjusted Gross Income (AGI) is less than $100,000, up to $25,000 of such losses can be deducted each year to offset income such as your salary. (AGI is basically income before subtracting your exemptions and deductions.) As income rises between $100,000 and $150,000, however, that $25,000 allowance disappears. Passive losses you can't deduct can be stored up and used to offset taxable profit when you ultimately sell the vacation house.

Tax-free profits

Although the rule that allows home sellers to take up to $500,000 of profit tax-free (up to $250,000 if you're unmarried) applies only to a sale of your principal residence, there is a way to extend the break to your second home: make it your principal residence before you sell. That's not as wacky as it might sound. Some retirees, for example, are selling the big family home and moving full-time into what had been their vacation home.

Once you live in that home for two years, up to $500,000 (or $250,000) of profit can be tax-free. Any profit attributable to depreciation while you rented the place, though, would be taxable. Depreciation reduces your tax basis in the property and, therefore, increases profit dollar-for-dollar. Also, due to a recent change in the law, if you use the property after 2008 for purposes other than your principal residence, part of the eventual gain on sale won't be eligible for the $500,000/$250,000 exclusion.


Investors VISA :

The E investor visa application is the most popular residency route with immigrants for a suitable new or established US business venture provides a relatively easy path. However careful research and planning will be necessary to avoid a costly and disappointing outcome.

Anyone expecting a visa based on the purchase of a single US home will be severely disappointed, for it will never be able to justify a business investment reason.

However a carefully presented visa application that involves the purchase of a home together with submission of a comprehensive detailed business plan could succeed.

If a visa application is poorly presented or it shows the property as being a “passive investment” it would normally be declined. Anyone considering an application is best advised to use an experienced professional with a proven track record in the preparation of such a business plan.

The purchase of property alone will always be viewed as a passive investment, however should the application clearly demonstrates an “active property business” an E2 visa could be issued.

It is also imperative to prove a “substantial financial investment” as being made prior to the application being submitted and although no actual sum is detailed anywhere in reality it should not be less than $100,000. Property loans are allowed although when the case sufficient projected business profit margin will be necessary for as the expense and risk increases so too does the scrutiny from the issuing immigration authority.

Vacation rental homes can be treated similarly to a hotel acquisition for the property purchased has a similar function, however homes should never be bought for any personal use!

Property assets purchased specifically for a rental business do of course require regular maintenance and rental bookings require necessary appropriate personnel for the business needs, no wonder property management is a popular form of investment proposal. In Central Florida, especially in the Disney catchments a constant demand for “good quality well run” property management firms still exists despite a number of holiday rental firms already operating in the area.

In view of the importance our buyers applied to property management, we decided that we should do everything to provide the best possible service. As such it would be best for us to remain totally independent and unlike many of our real estate competitors we resisted the financial temptation.

Orlando Investment Properties purchased in the “Sunshine State of Florida should keep rising in value for property prices here are still much lower than many comparable states such as California, where prices are almost 3 times higher!

Those interested in obtaining more information regarding a resident E2 visa application together with purchasing with Blue Coral VR Property our expert legal advisors and lawyers will prepare all necessary paperwork for seamless application process. Legal expenses and fee’s for this work will be billed separately.