Now is the time to buy a second home. With home prices declining, you can get the most economical deals. But wait, there’s more. Aside from the prices, you can reap tax benefits when embarking on a second home.

Tax benefits on your second home depend mainly on how you use the property. Different rules apply for personal use, for rental use and for selling. To find out the effects, read on…

Another factor which is leading to high property tax invoices is the high rate of foreclosures and increased defaulters. Many counties are thus looking at increased property taxes which are not being paid. Detroit is one such area where the property taxes have increased considerably, which has led to a high rate of non-payment of taxes. Detroit is now placed among the worst affected housing markets. The rate of foreclosures is very high and the property prices have devalued considerably. A weak economy with decreased employment opportunities is a major factor in Detroit as far as the real estate crash is considered.

Even if a home owner is paying the mortgage installments regularly, he may face foreclosure if he fails to pay his property taxes for 3 consecutive years. The county has the right to auction such properties in order to recover the outstanding tax amount. Counties in Detroit are thus facing the humongous task of recovering thousands of dollars worth of unpaid tax. The accumulation of unpaid taxes has led to financial destabilization of these counties.

Unforeseen circumstances can also be a reason for a premature sale. There are many things that could fall under this category, including the death of a qualified individual, the eligibility for unemployment compensation, divorce or legal separation, multiple birth pregnancy, man-made disaster or if the residence is sold after it was seized by a government agency. For the cases of unforeseen circumstances, the qualified individual could be the owner, the co-owner or any other individual that used the property as a primary residence.

Additional tax treatments are available if you use your home for business or rental property. The entire home, including the rental and business areas will qualify for the gain exclusion. The only difference in this case is that you must pay a tax on the gain if it was attributable to depreciation deductions that had been claimed after May of 1997. Keep in mind that the business or rental property must be located within the primary residence.

As long as you meet the eligibility requirements, you can earn considerable tax savings when you sell your home. Selling prematurely should be avoided if at all possible, but if a situation does arise, you will not lose as much as you think

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