Legal Considerations for Owning a Second Home
Whether it’s a summer home, an inheritance, or a rental property, owning a second home comes with its share of legal implications. Consider the following tips for your second home.
UNDERSTAND YOUR OPTIONS FOR OWNERSHIP STRUCTURE.
● A one-size-fits-all approach does not work when it comes to ownership structure.
Determining the proper structure is a fact dependent analysis with significant,
long-term consequences. Whether your second home is structured as sole ownership,
joint tenancy, joint tenancy in common, a partnership, or some other ownership
structure, may impact, among other things:
○ Tax liability;
○ Selling options;
○ The division of property in a divorce proceeding.
DEVELOP A MANAGEMENT SYSTEM.
● If multiple individuals are involved, defining responsibilities and authority is critical. (For example, who has the authority to make financial decisions?) A written agreement can help effectuate smooth operation of the property.
● In certain circumstances, setting up a trust may make sense.
CONSIDER THE IMPLICATIONS AND REQUIREMENTS FOR RENTING THE PROPERTY.
● Landlord-Tenant Law – The landlord-tenant relationship is highly regulated. Familiarize yourself with the laws of the state where your property is located.
● Insurance – Options may include property insurance, personal liability insurance, and rent insurance. Make sure your policy meets your needs.
● Lease Agreement – Being a landlord brings increased liability. Ensure you are using a written lease that properly protects your rights and interests.
● Property Management – Consider whether you have the time, knowledge, and desire to manage the property on your own or if hiring an outside property management company is a better fit.
● Tax Implications – Whether you are operating your rental property as an
investment or a business is just one of the many factors that will have tax consequences.
Understanding how these decisions will impact your tax liability may greatly affect
your bottom line. A qualified accountant can offer guidance on this and other tax-related concerns.
If you have questions or need assistance with your second home, contact the real estate team at Viviano Law.