The Taxes You Will (and Won't) Pay on Your Second Home

If your second home is strictly for personal use (or rented out for only a short time each year—we'll get to that later), you can deduct mortgage interest and property taxes just like you do on your primary residence.

You can't deduct the cost of repairs, utilities, or any of the normal costs associated with owning a home. Once again, this is just like your primary residence.

But what if you rent your second home to other people? The taxes you pay will depend on how often it's rented. Before we dive in, here's a quick primer on owning a second home, for the uninitiated newcomers out there. Got the info you need now? Let's get started, then!

Do you qualify for the "Master's Exemption"?

If you rent your home for 14 days or less each year, no matter how much you charge your tenants, you don't have to pay any income tax on the earnings.

This is known as "The Master's Exemption," named for homeowners in Augusta, Georgia who are often able to rent out their houses for exorbitant fees during the famed golf tournament.

You can't deduct any rental expenses, like insurance or utilities, because the house is still treated as one for personal use.

What if I rent out my home for more than two weeks per year?

If you rent your house for more than 14 days out of the year and stay there less than 14 days or less than 10 percent of the days it was rented, it will be treated as an investment property at tax time.

You can deduct expenses associated with renting, often including insurance, repairs, fees paid to property managers, advertising fees, and commissions (which you can offer to a current renter who finds you another one).

Do you live far away from your second home? You may even be able to deduct travel expenses, especially if you're doing work on the home yourself.

Additional tax-deductible expenses on your second home you may not have considered

Speaking of DIY projects, if you're staying in your second home strictly to get some work done, it may not count against your 14 personal days. Just make sure to keep all your receipts, and provide evidence that you did the work yourself.

You can also deduct losses and a portion of depreciation on your rental property each year, unlike your personal residence.

When it comes to deductions on a second home—or, honestly, any deductions—the most important thing is scrupulous record keeping and strict adherence to the rules. Saving a few pennies isn't worth risking large fines or criminal charges later.

Make sure you consult with a qualified tax professional before deciding what to deduct.