What Is a Secondary Home and How Is It Defined?

A secondary home refers to a residential property acquired in addition to an individual’s primary residence. Owners use these properties for personal enjoyment, such as vacation getaways, weekend retreats, or a temporary dwelling for work.

A secondary home is maintained for periodic occupancy by the owner and is furnished and ready for immediate use. Its purpose revolves around personal use, distinguishing it from real estate primarily intended to generate rental income, often referred to as an investment property.

For a property to be considered a secondary home, the owner must occupy it for a period. The Internal Revenue Service (IRS) defines a second home as a property the owner visits for at least 14 days during the tax year.

While a secondary home can sometimes be rented out, its classification hinges on continued personal use by the owner. It is not managed exclusively by a third-party rental company for continuous short-term rentals, nor is it purchased solely for profit through tenant occupancy. The owner’s ability to decide the rental calendar and maintain personal access reinforces its status as a secondary home.

Distinguishing from a Primary Residence

Specific criteria are used by mortgage lenders, insurance providers, and tax authorities to classify a property as a secondary home versus a primary residence. A primary residence is where an individual lives for the majority of the year. A secondary home is occupied for a portion of the year, supplementing the primary residence.

Mortgage lenders assess occupancy to determine loan terms. They often require a second home to be suitable for year-round use and located a certain distance from the primary residence. Lenders also expect the owner to maintain exclusive control over the property.

For tax purposes, the IRS establishes occupancy rules. A property qualifies as a second home if the owner’s personal use exceeds 14 days per year or 10% of the total days it is rented out at a fair market price, whichever is greater. If personal use falls below these thresholds and the property is rented, it may be reclassified as a rental or investment property, impacting tax treatment.

Insurance companies also distinguish between primary and secondary homes due to varying risk profiles. Secondary homes often face different risks, such as non-occupancy for extended periods, potentially leading to increased vulnerability to theft or damage. This distinction influences the type of insurance policy required and the associated premiums.

Financial Aspects of Owning a Secondary Home

Purchasing a secondary home involves financial considerations. Mortgage requirements for secondary homes are more stringent, reflecting a higher perceived risk for lenders. Borrowers face higher down payment requirements, often ranging from 10% to 20% or more. Interest rates for secondary home mortgages are similar to those for primary residences, but can sometimes be marginally higher.

Property taxes are an ongoing financial commitment. These taxes are levied by local governments, with rates varying based on location and property value. Owners of secondary homes are subject to the same property tax obligations as primary homeowners. These taxes are deductible on federal income tax returns, subject to certain limitations.

Insurance is an expense. Second home insurance policies are designed for properties used periodically by the owner. These policies may have higher premiums than standard homeowner’s insurance due to increased risk associated with periods of unoccupancy. Owners should also consider additional coverage, such as flood or hurricane insurance, depending on the property’s location.

Beyond mortgage payments, property taxes, and insurance, owners must budget for ongoing maintenance, utilities, and potential homeowners association (HOA) fees. These recurring costs contribute to the overall financial burden of owning an additional property.

Rental Considerations for Secondary Homes

Owners sometimes rent out their secondary homes to offset expenses, which introduces tax and regulatory considerations. When used for both personal enjoyment and rental, the treatment of rental income and deductible expenses becomes complex. The IRS has guidelines for properties with mixed personal and rental use.

If a secondary home is rented for 14 days or less during the tax year, the rental income received is not taxable and does not need to be reported to the IRS. In this scenario, no rental expenses can be deducted.

If a secondary home is rented for more than 14 days, the rental income must be reported to the IRS. Expenses related to the rental activity, such as mortgage interest, property taxes, utilities, and maintenance, can be deducted. The amount of deductible expenses is prorated based on the number of days the property was rented versus the total days of use (personal and rental).

If personal use exceeds 14 days or 10% of the total rental days, whichever is greater, the property may be classified as a “personal use” dwelling. This restricts the amount of deductible rental expenses to the extent of rental income, preventing a rental loss.