Vacation Home

I don't have a book to recommend, but as I understand it, generally you can deduct mortgage interest on up to two properties if they are not investment properties (you don't rent them out). Credit for second homes is tighter right now than for primary residences. You may also want to speak with an insurance agent to insure a policy will be available at reasonable cost on the potential new home--insurers have been increasingly up tight about insuring second homes--especially those anywhere near water.

An independent investment advisor is key for you. Friends, family, a business contact may be able to recommend a trusted independent advisor for you. Whether you can afford it is a function not only of current income/resources, but also retirement planning and a long-term, big-picture approach is what you need counsel on.

As kylewest indicates the tax treatment on a secondary residence is the same as though it were a primary residence, so long as you are not earning income on it. I have such a situation as you describe. It made sense to me for personal enjoyment, pride of ownership, potential family rearing, etc., as I wait to buy a primary residence in Manhattan.

No books or sites to recommend, sorry. I made a self-assessment before I bought and so far it has worked out. Timing has been a factor since I was able to take advantage of really good terms. Affordability for me required that I could manage all monthly payments (mortgage, tax, insurance, utilities, and upkeep, plus rent for my current apartment) without undue stress. I also have been aggressive about mortgage principal paydown such that I'll own the property outright within a year.

Anyway, owning has enforced a discipline and I now am less inclined to purchase a trophy Manhattan apartment. If you are not confident in your situation, speak with a trusted financial advisor.

Babsie--

This is something I have considered as well. I know at least one other couple who has done this, purchasing a second home in the Hamptons. I don't have any advice on tax implications, so can't help with your question. But I will way this--keep in mind that second homes require an enormous amount of work and upkeep. Prepare to spend your weekends shuttling back and forth to meet with plumbers, roofers, and handle myriad tasks and chores that are unique to houses.

Personally, I'd prefer to find a property that was a bit more accessible than the Cape, which is a long haul, especially in the summer when traffic snarls the whole region. Also, Kylewest makes a very good point about insurance for homes near water--insurance companies have become increasingly difficult about this in the past several years, especially on the heels of recent hurricanes. Also, property taxes may be quite high; we've looked at some water-front properties along the CT shoreline and the taxes were outrageous. Don't know if MA is similar...

The last couple of points to make are these: Remember that prices may still be far from the bottom in the locations that interest you. If you find a place you love, then great. But I don't know that now is the 'right' time to buy just for the sake of buying; things could easily drop further. Also (and this is what we've been grappling with), if you purchase a second home now, you will have that much less capital to work with if you happen to find the perfect primary home.

Consult an accountant, but I believer that you can deduct the mortgage interest, it is just a question of "where."

If your vacation home is your primary residence, it comes off on your Schedule A.

If your vacation home is a secondary home that you rent out occasionally, then you file a Schedule E on the rental business (which I think means you have to depreciate the property) and the mortgage interest deduction is an expense there, along with heating, utilities, repairs.

I too would caution you about upkeep, because a house is 10,000 times greater a pain than an apartment. I've got some beach house stories in my book "Diary of a Real Estate Rookie" (http://tinyurl.com/2ag28z) but if you want the short version: $11k for the driveway; $6.5K for the roof; and around $20K for mold remediation.

ali r.
{downtown broker}