Definition
A Qualified Residence encompasses both a taxpayer’s principal residence and one other residence owned by the taxpayer or spouse. For tax purposes, the interest paid on the mortgage for these qualified residences can often be deductible as an itemized deduction. This is an important aspect for many homeowners as it can significantly reduce taxable income.
Examples
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Primary Home and Vacation Home: A homeowner who has a primary residence in a suburban area and owns a vacation cabin in the mountains can count both properties as qualified residences for mortgage interest deduction purposes.
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Principal Residence and One Rental Property: A taxpayer who lives in a primary home but also owns a rental property only qualifies for the primary residence and can designate the rental property as the “one other residence” if they also use it personally for a defined period.
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Primary Residence and Second Home Used by Relatives: A primary home and a second home occupied by close relatives (such as children) without compensation also qualify under conditions for mortgage interest deduction.
Frequently Asked Questions
1. What properties can be considered as a qualified residence?
A qualified residence includes the taxpayer’s principal residence and one other residence used personally within the tax year.
2. Is interest on a second residence always deductible?
The interest on a second residence is deductible when it is used in a manner consistent with utilization requirements set forth by the IRS, such as personal use.
3. Can a taxpayer deduct interest on more than two residences?
No, under current IRS rules, taxpayers can only deduct interest on their principal residence and one additional residence.
4. What distinguishes a principal residence from a second home?
A principal residence is where the taxpayer primarily lives, while a second home may be used intermittently or serves other purposes without being classified as commercial property.
5. Can a property qualify as a residence if rented for part of the year?
A residence can only qualify if personal use exceeds 14 days or 10% of the total rental days.
Related Terms
Principal Residence: The main home where a taxpayer or their family live most of the time. This can include single-family homes, condos, co-ops, mobile homes, boats, or similar properties.
Interest Deduction: A tax deduction provided for interest paid on mortgage loans. It decreases taxable income, thus lowering tax liability.
Itemized Deduction: An expense that taxpayers are allowed to deduct from their taxable income, which primarily includes mortgage interest, property taxes, medical expenses, etc.
Mortgage Interest: Interest that a homeowner pays on a loan secured by their primary or secondary residence, which can often be deducted from taxable income.
Online References
- IRS Publication 936: Home Mortgage Interest Deduction
- Investopedia: Mortgage Interest Deduction
- Wikipedia: Mortgage Interest Deduction
Suggested Books
- Your Federal Income Tax by U.S. Department of the Treasury
- Home Business Tax Deductions: Keep What You Earn by Stephen Fishman
- J.K. Lasser’s Your Income Tax by J.K. Lasser Institute
Fundamentals of Qualified Residence: Taxation Basics Quiz
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