If you’re seriously considering buying a vacation home, there are a few more topics to address before you sign on the dotted line. Beyond lifestyle and rental income potential, important issues like insurance, estate planning, and tax implications need your attention.
Second Home Insurance Considerations
Second homes come with added risks—unoccupied periods, extreme weather locations, or the added liability of renting to others. As a result, insurance for vacation homes can cost 2–3 times more than a policy on a primary residence.1
Risk factors include2:
- Vacancy periods (higher theft or damage risks)
- Location-specific hazards (floods, hurricanes, wildfires)
- Luxury property value (requiring high-value coverage)
- Rental usage (increased liability)
Lenders will require insurance if you finance the purchase, but even if you buy with cash, protecting your investment is wise.
Including Your Vacation Home in Your Estate Plan
Thinking long term, what happens to your second home when you pass it on? Clear planning can help avoid conflict and preserve the property’s value.3
Options include:
- Gifting or selling the home to children
- Creating a trust to manage the home for future generations
- Establishing an LLC to formalize usage rules among heirs
Your family dynamics and financial goals will determine the best approach, but it’s essential to involve your financial advisor and estate planning team in the process.3
Tax Implications of a Second Home
While we’re not tax advisors, here are some key points to consider:
- Mortgage interest may be deductible (up to $750,000 if the loan is secured by the home).4
- State and local property taxes can be deducted up to $10,000 combined for all properties.4
- Short-term rental income under 14 days/year is typically not reportable. Over 14 days, it becomes investment property income.4
- Capital gains exclusions don’t apply to second homes as they do to primary residences.4
Understanding the tax consequences of both usage and sale is critical, and we recommend consulting a tax professional to help you plan.
Ready to Talk It Through?
Whether you’re leaning toward buying, renting, or still unsure, we’re here to help you sort through the financial and lifestyle implications. Your decision should reflect not only your dreams—but your overall financial picture.
Have questions? Let’s talk.
Source:
- Policygenius.com, May 7, 2024. https://www.policygenius.com/homeowners-insurance/second-home-insurance/#how-much-does-second-home-insurance-cost
- Coughlin Insurance Services, January 2, 2025. https://coughlinis.com/second-home-insurance-what-you-need-to-know/
- U.S. Bank, February 2025. https://www.usbank.com/wealth-management/financial-perspectives/trust-and-estate-planning/estate-planning-for-vacation-homes.html
- MSN, January 3, 2025. https://www.msn.com/en-us/money/realestate/second-home-taxes-explained-what-owners-need-to-know-in-2025/ar-BB1k1mJF
- PhotoAiD, February 14, 2025. https://photoaid.com/blog/vacation-rental-statistics/