Real Estate June 15, 2021

Thinking About Buying a Second or Vacation Home?

Here are a few tips to make sure it’s worthwhile…

These days, having your own home away from home is a compelling concept. There are many clear benefits including being able to use your home how you wish, decorate to your taste, and include your furry friends in your time away. There are also challenges to be considered as home security, maintenance, and holding expenses are nothing to ignore.

One consideration to start with is whether the home will be solely used by your family or become an income-producing vacation rental. In addition to being a lifestyle choice, this determination will impact your income taxes and insurance needs and should be made before you embark upon this journey.

There are advantages and disadvantages to both options:


Second Home for Your Personal UseIncome-Producing Vacation Rental


Owning as a Personal Second Home



  • Comfort: Returning to the same place is familiar and often more relaxing than staying in a hotel or vacation rental. It allows you to enjoy your space as you wish and include pets and hobbies in your home away from home. Proximity to your primary residence is an important factor. How long will it take to get there? You will likely visit more often if your second home takes under three hours to travel to. Choosing a location that you will enjoy for years to come is essential to making a good purchase decision.
  • Convenience: The ability to keep your possessions that are used exclusively at the second home simplifies travel and packing and makes it easier to be surrounded by the things you enjoy.
  • Long-term profit: While assets fluctuate in value in the short term, vacation properties are more likely to retain their value and appreciate because they are located in popular areas with a geographically limited supply. At some point you could have a nice nest egg or a property that becomes a family vacation home for future generations.
  • Future retirement options: A common retirement goal is to have a place to retreat for part of the year in addition to your main residence. Whether a second home will become a full-time venue in retirement or continue to be a part-time get-away, having it established before retirement gives you options.


  • Initial cost: Buying a second or vacation home is a big investment. Down payment requirements are typically higher on non-primary residences and that cash outlay can take away from other investment opportunities.
  • Maintenance: Your second or vacation home will require maintenance and upkeep just like your primary residence. You’ll need to plan to tackle that yourself or hire someone else to do it for you. Let it get away from you, and you will be spending your leisure time worrying about everything that needs to get done instead of relaxing.
  • Commitment: When you are paying a significant amount of money each month for a second or vacation home, you may feel that you need to constantly visit the property to justify your investment. You’ll need to ask yourself if the idea of going to the same place over and over again is appealing or a turn-off.
  • Other considerations: Evaluating and mitigating your exposure to natural disaster (fire, flood, earthquake, tsunami, etc.) and liability risks (guest injury, burglary, squatting, vandalism, arson) on a home that is vacant for much of the time is an important consideration. Determine how you will keep your home safe and secure.

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Owning as an Income-Producing Vacation Rental



  • Income to offset expenses: A good vacation rental property generally provides a healthy rental revenue which could potentially cover mortgage payments and operating expenses. Using an online short-term rental service like Airbnb makes it convenient to manage your rental property. Their website interface makes pricing, marketing, and communication with potential guests straightforward and easy. Airbnb will also oversee the billing process for you.
  • Tax considerations: You may qualify for federal tax breaks and deductions related to holding your investment property. This can help offset the expense of owning and provide investment opportunities for the future.
  • Long-term profit: Like a second home, vacation properties are more likely to retain their value and appreciate over time. At some point you could have a nice nest egg or a property that becomes a family vacation home for future generations.
  • Future retirement options: While there are tax considerations to converting an income-producing property into a personal use property, owning a vacation home allows you to insulate yourself against rising real estate prices and give you options for future use.


  • Initial cost: Buying a vacation home as an investment property will require both a hefty down payment and initial start-up expenses to furnish and supply the home. You will need to evaluate that cash outlay with other potential investment opportunities.
  • Management and maintenance: Vacation rentals can be costly to manage, both in terms of time and money. These properties may require seasonal upkeep and special maintenance considerations. You may even incur costs to maintain or monitor the property even when it’s not actively being utilized.
  • Revenue fluctuations: Vacation rental properties are particularly sensitive to seasonal fluctuations and economic downturns, which could leave you financially exposed. Having a property that is attractive in multiple seasons is a definite plus.
  • Short-term rental restrictions: Many state and local municipalities are seeking to reign in short-term vacation rentals, which could put a damper on potential revenue from these properties. Many now require a minimum rental period of 30 days. In contrast, there are locations that are ideal for these kinds of short-term rentals. Look into regional ordinances, do a Google search, and check out local newspapers to discover recent talk of changing or enforcing such codes.
  • Other considerations: In addition to evaluating and mitigating your exposure to natural disaster and liability risks, you will want to consider other holding expenses. These might include higher renovation and repair costs due to high-use or damage. Most travelers expect the latest appliances and furnishings, so you will have to update every few years. Unfortunately, short-term renters are less likely to report any necessary repairs and guests are far less likely to treat the property with respect since there is no sense of ownership or obligation.

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Final Thoughts

Regardless of your decision to use the property personally or as an investment, checking in with your CPA and financial advisor is a good first step. They can advise you of pros and cons of each approach, States that are more or less favorable to own a non-primary residence in, and whether you should establish a trust or LLC to hold the property in.

Having a savvy real estate broker help you understand the local scene, evaluate options, and provide vetted resources is essential, especially when you are looking in an area you are less familiar with.

Still have questions? Conact me for assistance with exploring a second and vacation home purchase locally, or I can refer you to a great broker in other areas you are considering.



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Real Estate June 4, 2019

New Real Estate Excise Tax (REET) Rate (eff. 1/1/20)

We Want Know About the Excise Tax Change


Now that Washington State Senate Bill 5998 has been signed into law, our local real estate excise tax—the tax paid when you sell a property—will be getting a facelift in 2020. The flat rate of the past will make way for a new tiered system which gives owners a tax cut on the first $500,000 of home value, keeps the current tax rate on the next $1 million of value, and then increases it sharply after $1.5 million.


The good news is that taxes will go down for the vast majority (~93%) of sellers in King County. Sellers of luxury homes that fetch more than $1.56m, however, will be paying more—much, much more in the case of multi-million dollar home sales.


Wondering how the changes might impact your bottom line when it comes time to sell? Scroll down or check out our quick reference worksheet


2020 CHnages to King County Excise Taxes




The previous flat state REET tax of 1.28% (1.78% after the 0.5% local portion is added) will be replaced on January 1, 2020, by the following rates (total REET after King County local portion is shown in parenthesis):


1.1% (1.6%) – Portion of selling price less than or equal to $500,000

1.28% (1.78%) – Portion of selling price greater than $500,000 and equal to or less than $1.5 million

2.75% (3.25%) – Portion of selling price greater than $1.5 million and equal to or less than $3 million

3.0% (3.5%) – Portion of selling price greater than $3 million

These thresholds may be adjusted again in 2022 and every four years after that using a formula for calculating value trends.

The current state real estate excise tax rate has been the same since July 1, 1989 while the local portion of the rate has been managed by each jurisdiction individually. You can find the full details in this Real Estate Excise Tax historical rates chart provided by the Department of Revenue.

The state provides a summary of the history and use of the real estate excise tax in Washington State detailing changes over the years. Currently, the bulk of the estate tax (92.3%) goes to the General Fund. Beginning January 1, 2020, and ending June 30, 2023, revenue distributions must be as follows: 1.7 percent must be deposited in the Public Works Assistance Account; 1.4 percent must be deposited in the City-County Assistance Account; 79.4 percent must be deposited in the general fund; and the remaining amount must be deposited in the Education Legacy Trust Account. Beginning July 1, 2023, and thereafter, revenue distributions to the Public Works Assistance Account increases to 5.2 percent. You can find the full law and definitions in Chapter 458-61A WAC (Washington Administrative Code).




If you sell for $1,561,258 or less in King County, you will pay the same or less (up $900 less) in REET after 1/1/20. This is great news for most property owners in King County and across the state. Because the rate states the same on the portion of the selling price greater than $500,000 and equal to or less than $1.5 million as it currently is, all the savings comes in the portion below $500,000. This begins to whittle away as you creep above $1.5 million and into the higher tax rate of 2.75% (3.25%).

If you sell for more than that amount, you’ll be paying more–often much more. You can see from the quick reference chart below that the seller of a $2.5 million property will pay an additional $13,800, while a $5 million sale will cost an extra $55,550 and a $10 million sale a whopping $141,550 more.

Everyone will have a different take on the new tax rate, but if you have a valuable property and contributing more to the state’s coffers isn’t part of your charitable giving strategy, selling in 2019 might offer significant savings. On the other hand, selling in 2020 and beyond funds education and public works at greater levels than ever before, and that benefits everyone.






We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.


© Copyright 2019, Windermere Real Estate/Mercer Island. Originally posted on Windermere Mercer Island’s “Local in Seattle” blog.

Real Estate March 9, 2018

Planning ahead: how tax reform will impact your home deductions next year

2018 Tax Changes for Home Owners


While you may still be busy filing your 2017 taxes, it’s important to look ahead and be aware of how the new 2018 tax reform laws will affect next year’s return–especially if you’re a homeowner. Those who itemize will need to note some big changes in what they can and cannot deduct. Many will instead choose to use the new higher standard deduction ($12,000 for single individuals and $24,000 for joint returns) rather than itemizing their deductions.

What can you do now? Check in with your accountant for advice specific to your situation and filing status. Also, you’ll probably want to update your withholding amount to reflect the new deduction amounts. In the meantime, here is the skinny on 5 changes that may affect you if you own a home…


1. Mortgage Interest Deduction

The deduction that allows homeowners to reduce their taxable income by the amount of mortgage interest they pay has been scaled back.

  • For loans taken out after 12/14/17, you can now only deduct mortgage interest paid on the first $750,000 of combined debt for primary and secondary residences (or $375,000 if married filing separately).
  • Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap if they were taken out before 12/15/17 (or if you entered into your purchase contract prior to 12/15/17 and the sale closed by 1/1/18).
  • You can continue to deduct the interest on grandfathered loans even if you refinance.


2. Home Equity Loan Deduction

Under the former tax law, you were able to deduct the interest on up to $100,000 of home equity debt even if the proceeds were used for something other than buying or improving the home (for example, an equity line of credit used to pay college tuition). This is now no longer the case.

  • New 2018 law eliminates the deduction for interest on home equity debt unless it’s used to buy, build, or substantially improve the home that secures the loan.
  • Loans to buy second homes do not qualify for the interest deduction if they’re taken out against the equity of your primary home.


3. Deduction for Property & Sales Taxes

Tax relief for homeowners who pay property taxes has also been limited.

  • Itemized deductions for property taxes, sales taxes, state income taxes, and any other local taxes will now be limited to a combined total of $10,000.
  • The combined limit drops to $5,000 if married filing separately.


4. Deduction for Moving Expenses

While you used to be able to deduct some moving expenses when you moved for a new job, this deduction has been repealed for everyone except active-duty members of the armed forces.


5. Deduction for Casualty Losses

Under former law, substantial losses to your home and personal property through things like fires and robberies could be deducted from your taxable income. Under the new law, this deduction is eliminated for everything except presidential-declared natural disasters.


Want to know more?


The above article is presented for informational purposes only and is not intended to replace professional tax advice from your accountant.

“The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals,” by the National Association of Realtors
“5 Homeownership Changes Coming Under New Tax Law” by NerdWallet
“Tax Reform” by the Internal Revenue Service


We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.

©2018, Windermere Real Estate/Mercer Island