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If you’re thinking about purchasing a second home in Breckenridge or Summit County, here's some valuable information to help you in this momentous decision. Your second home can be a place for you to get away from it all, develop and enjoy your hobbies, renew your spirit, and do the things you love.
But before you make the decision, there are some important practical issues to consider mostly having to do with the financial aspects of second home ownership. The major decision is whether you want your second home purely as a vacation home, or are you looking for an investment property? The tax ramifications are different for these two uses.
A vacation home is one that you use for at least 14 days per year (or, if it is rented, at least 10 percent of the total number of rental days). An investment property is one that is used less than 14 days, and owned primarily to generate rental income. In both cases, you have the probability of appreciation as it relates to your overall financial goals.
The tax ramifications of these two types of ownership are very different:
Vacation Home Investment Property
Mortgage Interest deductible not deductible
Rental Revenue tax free must be reported, taxable
Rental Expenses n/a deductible
Property Taxes deductible deductible
Rental Expenses n/a deductible
Utilities n/a deductible
Home insurance n/a deductible
Depreciation n/a allowed
In an investment property, in some cases, rental losses can be used to offset other income, dependent on the amount of other income and your own usage of the property. It may be possible to use funds from your retirement savings accounts to purchase an investment property. It is also possible to schedule “fix-up or maintenance days” which are not counted as your own personal usage. You should consult an accountant for these rules and information.
Whatever the choice, it is possible to use the equity in your permanent residence to purchase or make the down payment on your second home.
Once you’ve decided on the Vacation versus Investment property, you can consider all the reasons why you’ve chosen Breckenridge or Summit County as your second home location.
A 2006 survey of current homeowners (both local and second homeowners) by the Northwest Colorado Council of Governements (NWCCG) reported the following about second homeowners in Breckenridge. All responses are listed in order of importance.
Why did you purchase in Breckenridge? Recreational amenities, proximity to ski resort, scenery and surroundings, intend to vacation here, investment potential, small town atmosphere, climate, air and water quality, friendliness, proximity to front range, rental income, more affordable than other mountain resorts, intend to retire here, proximity to friends/family, and proximity to airports.
How important are community services? Open space/trails, parks/trail system, recreation center, arts/cultural, public transportation, library services, Division of Wildlife, medical services.
Most important recreation? Downhill skiing, walking/jogging, hiking, mountain biking, golf, fishing, picnic areas, swimming, Nordic skiing, playgrounds, snowboarding, tennis, sailing/boating, ice hockey/skating.
What is most important? Recreational opportunities, parks/trails and open spaces, public safety, appearance of town, opportunities to attend cultural events, transportation, sense of community, shopping alternatives, health services, education (K-12), traffic, adult education, job opportunities.
These responses probably match-up pretty closely with your own decision to purchase a second home here.
According to the National Association of Realtors (NAR), if you’re a typical second home purchaser, you are a baby boomer in your late 50’s with a belief in diversifying your assets, and you earn around $120,000 annually. In their 2006 report, the NAR reported that of all home purchases in 2006, 36 percent were for second homes, with vacation home sales up 4.7 percent over 2005. 24 percent of these second home purchases were in resort areas. Of all home purchases in 2006, 22 percent were for investment properties, and 7 percent of them were in resort areas.
All this information is provided to let you know that you’re not alone in considering a second home purchase in Breckenridge or Summit County. Because of this, when you consider the supply/demand ratios, you can anticipate that prices will continue to escalate (appreciation) because Summit County is approaching “buildout” where all the property available for development has been developed.
