The GOP’s proposed tax bill hasn’t passed yet but already housing experts are developing strategies to escape the cap on mortgages.

Instead of being able to deduct interest on mortgage debt up to $1M on first and second homes as it stands now, the House version of the bill caps deductions at $500,000. Instead of being able to deduct property tax on vacation homes as it stand now, the House bill caps those deductions at $10,000. The Senate version of the bill eliminates such deductions altogether.

The proposed House version of the tax bill eliminates deductibility on second homes for personal use. That elimination could make vacation homes much less appealing…unless second homebuyers want to become landlords.

According to Lawrence Yun, chief economist at the National Association of REALTORS, the only way to benefit tax-wise from a second home would be to rent it out. “This would unintentionally make property ownership turn into rental ownership.”

Costs associated with renting vacation homes that would be deductible include maintenance, upkeep, insurance premiums, property taxes and mortgage interest.

In terms of usage of the vacation home, renting the house for longer than 14 days per year would require the owners to report income from the rental on their tax return. If rented for 14 or fewer days a year, any associated income from the rentals would be “free.” If the owners use the vacation houses themselves for more than 14 days per year or more than 10% of the days the houses are rented, then the vacation houses are considered personal residences and the proposed rules would be applied.

Possible effects of the proposed tax bill on second homes prices? “If there is corresponding demand for rentals – say people have more to spend after tax reform – that could keep prices stable, but…” said Danielle Hale, chief economist at, “…if there are more rental properties on the market than the demand for them, rents would fall…and generally the price of those (homes) would fall also.”

And don’t forget about how eliminating tax breaks for vacation homes could hurt local economies dependent upon economic activities generated by vacationers.

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