When a beach house is your primary home, the taxes are the same as they would be for any other house you own. However, if you own a vacation property or an investment property that you use as a second home, the tax treatment can be different. In addition, you may be able to defer the payment of certain taxes by selling your beach house through a 1031 exchange.
Tourist Development Tax (TDT) — The TDT is a state tax imposed on all short-term or vacation rentals within Bay County’s Special Taxing Jurisdiction, which covers the entire Panama City Beach area. These facilities include hotel/motel rooms, condominiums, single-family homes, apartments, townhomes, multi-unit structures, mobile homes, cottages, beach houses and guesthouses.
Capital Gains Exclusion — If you sell your beach house after living in it for two of the last five years, you can exclude up to $250,000 in gains from taxes. If you’re married and filing a joint return, the amount is even greater.
In addition, you can claim depreciation deductions based on 80% of the value of your home. And the costs of repairs that extend the life of your home also count as capital improvements.
Insurance — You can deduct your beach house insurance premiums on the rental income you receive from the property. You can also take out vacation rental liability insurance, which is usually cheaper than homeowner’s insurance for most people.
In order to maximize the tax savings you can receive from your beach property, it’s important to keep meticulous records of your use and expenses for the property. This will help you prorate or separate personal uses and expenses from business uses and expenses, which can make calculating your tax savings more accurate.