Tax Deductions for a Recreation Vacation Home

You have to use Form 1040 to claim vacation home tax breaks.

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You probably don't think of recreation when you think of the the Internal Revenue Service, but you might think differently after seeing the tax breaks for which vacation homes qualify. Having a vacation home not only gives you a recreational break from the grind of everyday life, it also gives you a reason to take a number of additional tax deductions.

Mortgage Interest

If your vacation home qualifies, you can deduct the interest on the mortgage; however, your mortgage interest deduction is limited to the interest on the first $1 million of home mortgage debt, including the mortgage debt on your primary home. For example, if you've got a $1 million mortgage on your main home, your vacation home mortgage won't help you on your taxes. To claim the deduction, you have to itemize your deductions.

Second Home Requirements

You have to meet second home requirements to deduct your recreation home. If you don't rent your vacation home out at all, it doesn't matter how much you use the home during the year. However, if you do rent it out, you have to use the home for personal use for the longer of two weeks or 10 percent of the time you rent it out. For example, if you rent your vacation home out for 10 months, you must use it for personal use for two months.

Prepaid Interest

If you paid discount points -- a form of prepaid interest -- on the vacation home mortgage, you can deduct those points on your tax return. Since you're buying a vacation home, you can't deduct the points all at once. Instead, you have to spread the deduction over the life of the mortgage. For example, if you take out a 15-year mortgage and you pay $3,000 in discount points, you can deduct $200 per year.

Property Taxes

Regardless of whether or not the vacation home qualifies for the mortgage interest deduction, you can write off the property taxes you pay on the home. The property taxes must be based on the value of the home and charged annually, even if you pay the taxes in installments. Like the mortgage interest deduction, you must itemize your deductions to write off your real estate taxes.