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[T76]Taxes On Second Home

by Sanjog Gopal, San

Many of us like to think that one day we will be buying our second home - some of us already have one. Exotic homes often beckon us to foreign shores, but there is always slight trepidation when buying a property overseas, some of their laws are different to ours. Will we be protected? Will the land or strata regulations suddenly be changed? Can clauses be altered after contracts are signed and established? Can the government over-rule existing laws? What are our rights?

These are all valid questions and 'security of the law' is one of the reasons why many of us still buy in USA; we are familiar with, and know the laws in our own country. Or do we?

Recently a group of vacation home owners in USA were served with shut down orders. This brings it home to any of us that are planning to buy property that we must take ethical professional advice, and ensure that we are operating within the law of the land - and within the law of the counties and cities!

Often when we are planning to buy a vacation home in a newly developed area, several points may be overlooked by the local authorities in their enthusiasm to bring new business to their area. The authorities in question are not willfully practicing deception, they are practicing good will!

At the time these little bylaws are not too important, and can be ignored to encourage the pending rush of tourism into the area. It is a hospitable gesture on behalf of the region's hierarchy to do a favor and waive aside a few administrative conditions; after all, tourism will be lucrative for the newly developed area and its people.

But, like many rules that go unbroken and unnoticed by one or two people, when the whole town is doing it, then the situation becomes a nuisance. People complain - heads must roll etc. This is what has happened in USA, over in Hawaii and shut down orders for many vacation homes have had to take effect from Jan. 1st. 2008.

Maui County Officials ordered hundreds of vacation home owners to stop renting their homes, because they were renting them without a permit. This practice of renting without a permit has been permissible under previous county administrations. Owners were allowed to operate vacation rental homes while they were waiting out the permit approval process.

The Maui Vacation Rental Association sued Maui County in the U.S. District Court, but the judge was obliged to carry out the law, although commenting that 'it did not seem fair'. Consequently 900 of a possible 1200 units have been shut down with an estimated loss of up to $100,000 per year in rental income.

The reason that was given for the lack of permits was that the growth in the number of vacation homes brought too much noise into the neighborhoods. It had also increased the realty prices to a level that Hawaiian residents found difficult to afford.

This problem of pricing the locals out of the realty market had happened years ago to a small holiday island off the French coast. The solution was to enforce two different levels for property prices, one for newcomers and one for residents.

This controversy is now actually damaging the island's tourism and suits from property owners seeking damages could further harm it. However, there is a lesson to be learnt here.

When buying a vacation home anywhere, including in the USA, be prepared to follow the law of the land. Get everything in writing (i.e. in this case, that you CAN rent while waiting for your rental permit to be approved) and only enact what you can back up with written permission.

When you are looking for your second home insurance, you will find that insurance companies regard your second home as more of a risk than your main home, meaning that premiums will be higher. So what can you do about this? One thing you can do is take steps to minimise the potential risks, in order to keep costs down. Most of the risks fall into two categories: security, and structural risks.

From the security point of view, the insurance companies' problem is that either your property will be left empty for long periods, or it will have a lot of different people staying in it. Either way, it will be less secure than your normal home. Security precautions you can take include:

• Change the locks when you first acquire the property.

• Fit police-recommended locks to all doors and windows.

• Make sure you don't give out the address of your second home to anyone who doesn't absolutely have to have it. Have mail such as utility bills sent to your main address.

• Consider having lights on timer switches to give the impression that the property is occupied. You could put a radio on the timer switch too – a bit of sound really makes it seem as if people are in.

Of course, if your second home is for a student son or daughter, it may only be empty during vacation time, but these points are still valid. Remember if your son or daughter lets rooms to fellow-students, as many do, you need to be strict about security precautions. These points are not usually at the top of most students' agendas.

The other main risk category for your second home insurance is what happens to the building itself when the place is unoccupied. The main precautions you can take here include:

• Consider leaving the heating on thermostat at a low temperature throughout the winter if you won't be there – this will help prevent frozen and burst pipes. (Remember some second home insurance policies insist that the heating/water system must be drained down during the winter months. Do check whether this is a condition of your policy.)

• Check everything before the winter to minimise damage from storms and gales – including fences, trees, TV aerials etc. Most importantly, check your roof for loose tiles, or get a roofer to do it. If water comes into your property through the roof, the damage could be very serious by the time you discover it.

• Keep checking with the Environment Agency about flood risk. Every year more places become liable to flood risk which had not been at risk previously. If there is the slightest possibility of flood, ensure you take every possible precaution as advised by the agency.

There are several reasons for taking steps to minimise risk: peace of mind; protection of one of your major assets; and, of course, keeping your premiums down! So when shopping around for your second home insurance, make sure you look for a policy that rewards you for doing as much as possible to protect your property.

Article Source : Pg. 15

About Author

Both Sanjog Gopal & Seanhorton are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Sanjog Gopal has sinced written about articles on various topics from Mortgage Insurance, Real Estate and Finances. This article was written on behalf of Sanjog Gopal. Sanjog has many years of experience as a professional REALTOR® in the market. Sanjog brings. Sanjog Gopal's top article generates over 14800 views. to your Favourites.

Seanhorton has sinced written about articles on various topics from Mortgage, Finances and Internet Marketing. Sean Horton is a Director of who offer. Seanhorton's top article generates over 12100 views. to your Favourites.