DEFINITION of 'Vacation Home'

A dwelling other than the owner's primary residence that is used for recreational purposes, like vacations (hence the name). Because vacation homes are only used at certain times, many owners will rent out their vacation homes when they are not using them. For example, a couple living in Maine might occupy a vacation home in Florida during Maine's coldest months and rent it out to other people for the rest of the year.

BREAKING DOWN 'Vacation Home'

Mortgages on vacation homes typically have higher interest rates than mortgages on one's primary residence, because they have a higher risk of default (in the event of a reversal of fortunes, individuals are more apt to save their primary residence than a temporary one). Nevertheless, most of the other perks of home ownership still apply, athough the restrictions are a bit tighter. If one does rent out the vacation home, then there are limitations as to how long the owner can reside there and still deduct rental expenses. The sale of a vacation home does not allow for the same income tax deductions as the sale of a primary residence does.

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