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Maximize Retirement Flexibility and Enjoyment with a Second Home

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The Best of Everything

The epitome of optimum retirement living for many people is two (or more) homes with each situated in an area offering unique attractions.  This could be one home in the mountains and another on the beach or one in the north and another in the south.  In any event, two homes offer variety, comfort and additional recreational opportunities.  In general real estate, despite current problems, is a good long-term investment.  A second home provides an automatic savings plan (equity build through mortgage payments), a tax write-off and a hedge against inflation.  If you have a fixed-payment mortgage, you'll be making payments each year using cheaper (devalued, inflation-adjusted) dollars.

Second Home Type

Just as your primary retirement home can be a condominium or single family home, your second home can also take a variety of forms.  One major consideration in determining what's best for you is the amount of time that your second home will be occupied.

Condominiums are most suitable for part-time occupancy in that all external maintenance is provided by the homeowners association.  The association is responsible for the building containing your condominium and for all common areas, including parking lots, swimming pools, tennis courts, clubhouses, etc.  They maintain the landscaping, roofs, external doors, and balconies, and they paint the buildings.  Some associations may even look after your unit while you are away.

You can leave your condominium generally assured that, as long as the heating and cooling are kept operational, when you return it will be in the condition that it was when you left.  You just need to remember to shut off the water and lights, dispose of any perishable goods, turn off the hot water tank, set the thermostat, and lock the doors and windows.

Second Home Cost/Expense

A second home will generally have similar expenses to your primary home.  These would included:

  • Home mortgage
  • Real estate taxes
  • Home insurance
  • Homeowner association fees
  • Utilities (electric, phone, water, cable TV/internet, etc.)
  • Repair & maintenance

Tax Savings

Both mortgage interest and real estate taxes for a second home can be claimed on your federal taxes if you itemize deductions.  You may also qualify for special credits (e.g., energy efficiency upgrades).  If you rent your second home, additional expenses to those listed above can be claimed including management fees, supplies, depreciation and inspection/maintenance visits.


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Establishing State Residency

There may be good reasons for establishing residency in the state where your second home is located.  These could include reduced state income tax, reduced estate tax, property tax residency exemptions, reduced automobile insurance premiums, etc.  Following are the steps that you should take in establishing residency in another state:

  • Rent or purchase a home, that you consider your primary residence, in the state.  If you own a home in another state, you must own (not rent) this home in order to declare residency.
  • Live in the state for 6 months and one day. Leave and return to this state when vacationing elsewhere to claim days-in-state credit.
  • File a Declaration of Domicile in the state and county in which you reside.
  • Apply for Residency/Homestead Exemption (if you own the home).
  • Declare in your Will, Codicil or Trust that you are a resident of the state.
  • Register to vote in the state as soon as you are eligible, and vote in the state.
  • Attend jury duty in the state if/when asked.
  • Transfer all bank accounts, brokerage accounts, safe deposit boxes and securities to financial institutions within the state.
  • Register your automobiles and boats, if applicable, in the state and obtain the state's drivers license.
  • File your Federal income tax return with the IRS using your new address and the IRS filing address for the state.
  • State that you are a resident of the state in all transactions, business and charitable.
  • Use your address in this state on all registrations and correspondence.
  • Change the address on all your credit cards and insurance policies.
  • Establish church membership in the state.  Change social, religious and other national organization memberships.
  • Obtain a telephone listing in the new state and use this as your primary phone.  Consider removing any phone directory listings from other states.
  • Keep as many of your primary records, personal photos, and valued possessions as possible in the state.

Renting Your Second Home

One advantage of a second home is that you can choose to rent it during the months that you're not using it to help defray costs.  For those who choose to do this, a real estate agent can be used to manage your property, obtaining renters and possibly providing routine maintenance.

Some owners who rent their second home elect to save the 15 to 20% rental agent commission and rent their homes directly.  Although, this provides extra net income, it places additional responsibility and tasks on the home owner.  Tasks include:
  • Advertising,
  • Tenant qualification,
  • Scheduling,
  • Lease execution,
  • Fee (security deposit, rental & taxes) collection,
  • Tax (state & local) payment,
  • Record keeping/retention, and
  • Cleaning.

Regardless of whether a home is rented by an owner or agency, both county and state taxes must be collected in many instances and forwarded, in a timely manner, to the respective government department.  A state sales tax must be collected and sent (quarterly, semiannually or annually) to the state department of revenue.  In some places an additional tourist development tax must be collected and submitted to the proper authority.  Remedies for failure to collect taxes include the issuance of a warrant which places a lien against the property.  See the Rent Income section of this website for additional information.