Deductibility of Expenses Associated with Renting a Second Home

John K. Cook, JD, LLM, and Alan J. Ocheltree, JD, LLM

The tax rules governing expenses incurred in owning or renting a second home are likely to be important to many taxpayers in the coming years, for several reasons. First, severely distressed real estate markets, a general economic downturn, and struggling equities markets will likely cause investors to seek alternative investment opportunities and low housing prices provide such an alternative. Second, a slow economy often causes difficulty for those who have already invested in residential real estate as a second home. in a slow economy, lower than expected stock market returns or a job loss can make it difficult for individuals to remain current on the expenses associated with a primary residence, much less a second home. As a result, such owners often decide to rent their second homes to defray such costs. of course, even in good economic times, individuals may rent their second homes for additional income.