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.

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.