By JEFF BETSILL
President, Homeowners Association of Midwest Georgia

Think a vacation home is out of your reach? Think again.

Many vacation homes pay for themselves. So go ahead - dream about a summer vacation by the beach in a house that you own.

A vacation home is an investment in the future that you can enjoy today. Some people buy vacation homes and plan to live in them full-time after they retire. These wise investors can enjoy their future retirement homes on the weekends. And they will have fewer mortgage payments to make on their retirement incomes.

But a vacation home is even a wise investment for those who don't plan to move into it after retirement. The well-to-do baby boom generation has put vacation homes in high demand. And real estate experts predict that these second homes will continue to appreciate in value. Some consumers who buy vacation homes now will sell them later at a profit.

And there are some tax benefits for vacation homeowners. According to the IRS, vacation homes fall into three basic categories:

1. Personal residence. This applies if you rent your vacation home for less than 15 days during the year. On your tax report, you may deduct mortgage interest and property taxes as itemized deductions, as long as your debt does not exceed $1 million. You can save a sizeable sum if you claim the mortgage interest deduction on your taxes. The higher your tax bracket, the more you will save. But you may not deduct other expenses such as utilities and repairs.

If you rent your home for less than 15 days, you do not have to report the rental income on your tax return. For tax purposes, you should not own more than two homes that are considered personal residences.

2. Personal residence/rental property. This applies if you do rent out your vacation house, but your personal use of the property exceeds 14 days and is more than 10 percent of the total days you rent the house. The “residence rental rules” apply to you. In this case, you must report the rental income collected on your tax return. Keep track of the days you spend in your vacation home so you can allocate expenses between rental and personal use.

According to the IRS, “personal use” includes any day or part of a day that the owner or any relative of the owner uses the property.

It does not include days spent maintaining the home or preparing it for renters. If you rent out the home for 30 percent of the total number of days the home is used, you may deduct 30 percent of your maintenance and upkeep expenses, including rental advertising, insurance, repairs and utilities. You may also deduct mortgage interest and property taxes.

3. Rental property. To fall into this category, you cannot personally use the home for the longer of 14 days or 10 percent of the total number of days the home is rented.

You can benefit from the rental property rules, which, under certain conditions, allow the taxpayer to deduct losses if rental expenses exceed rental income. For tax purposes, you must divide your upkeep expenses between rental and personal use.

If you lose money on your rental property and your adjusted gross income is less than $100,000, you may deduct up to $25,000 of rental losses a year against regular earnings, such as salary.

To qualify for this deduction you must actively manage the property, approving new tenants and authorizing repairs.

Clearly, there are many advantages to investing in a vacation home, including your own personal enjoyment. But before you make the big purchase, consider the following:

” Can you afford two mortgage payments?

” How much will you pay for utilities and upkeep?

” Will the purchase pay off as an investment? Try to estimate how much the property's value will increase.

” How easy will it be to rent out the property? You can't necessarily rely on rental income to pay the mortgage. But if you buy in a popular place, you may recover at least a considerable share of the mortgage cost. In most cases, a vacation home is a wise investment. So go ahead, do your homework, check with your tax advisor, do some house shopping end then enjoy. You probably won't think of many better ways to spend your money.

Jeff Betsill owner of Jeff Betsill Homes, is president of the Home Builders Association of Midwest Georgia, which serves a membership of approximately 395 builders and associate members In Fayette, Coweta, Spalding, Heard and Meriwether counties.