Tax & Mortgage Differences of Buying a Second Home Vs. Primary In New York

If you’re part of the upper class, you already know that New York real estate is a status symbol.

Having a home in New York City offers sights, convenience, and business opportunities--even if it’s not your primary residence.

It’s common enough to want to get a second home in New York, but many people don’t always know what to expect.

Truth be told, most real estate articles about New York City focus on getting a primary residence or an apartment.

This is useful for many people, but it doesn’t really help much if you are seeking a second home in the city.

Shopping for a second home is wildly different from a typical home-buying experience.

So, what do you expect? What do you need to know?

This article will give you a run-through of what you should know about getting a second home in the city…

Tax & Mortgages for Second Homes

• There are many good reasons to purchase a second home in New York City, which include investment purposes, work or school in the city, frequent vacations/visits, and as a status symbol.
• Pied-a-terre's don't have to be more expensive than a primary residence in New York.
• Financing can be trickier for a second home and may require great credit, high earnings, and plenty of cash reserves.
• Taxes and tax breaks work differently between a primary and secondary home in New York. You won't be able to claim as many tax credits for a second home.
• You may be able to save on taxes for a second home if you don't spend much time in the city.
• Using a full-time residence in New York City and trying to pass it off as a secondary home may lead to a tax audit.

What is a Primary Residence?

A primary residence is the place you consider your full-time and main home--the central hub, so to speak, from which you operate.

This is often where you live, collect mail, go to work or school from, and sleep at night.

A second home can be very similar and for some people, this line may be more blurred, especially for people who spend half their time in their primary place and the other half at their second home.

Your primary residence is also an important status and place for loan/mortgage, insurance, and taxation considerations.

What Is a Second Home?

A second home is a home you do not consider your primary residence. People typically spent less time at their secondary residence than their primary one.

It is usually a property most people use for vacation purposes, although a second home can have other functions (more about that later).

Another fancy word for a second home is a pied-a-terre, which is a French term for a secondary home that you use for vacationing or short stop.

You may have seen this term in real estate listings. It can refer to a home, a condo, an apartment, or less commonly, a co-op in the city.

Pieds-a-terre's are increasingly popular among wealthy families in New York City.

They are commonly used as places to stop and rest during international travels, vacation homes, work-related commute homes, as well as “party homes.”

To learn more about pieds-a-terre's, read our article on What is a Pied-a-Terre?

Primary Residences vs. Secondary Homes: Financing

One of the biggest differences people will see when they’re looking to get a pied-a-terre in New York City deals with financing.

Simply put, people who would have little issue affording a primary residence would likely be outpriced for a secondary home in New York City--and that’s due to financing regulations on second homes.

Though the Big Apple is known for high rent prices, laws make a point of keeping things relatively reasonable for the average family.

That’s why NYC has so many financing programs and laws regarding real estate.

If you know where to look, there are plenty of programs and amenities to make both renting and homeownership easier for struggling families.

However, most of those amenities and programs are only available to families who want to have a primary residence in the area.

To get a secondary residence, you’re going to need to be able to afford your second home without any help from typical government programs.

In addition, mortgage rates tend to be lower for loans for primary homes than second homes.

What restrictions do buyers face for a second home in NYC?

If you’re buying a second home in New York City, you better brace yourself for a lot of work and hassle.

Many lenders won’t offer loans for a pied-a-terre at all, but it's definitely not impossible.

Even Fannie Mae has announced that lenders can consider financing for second homes that are vacation properties (this does not include investment properties).

Those that do tend to have strict rules. The most common regulations you may run into include:

• Good credit. While there are programs that let you buy a home with bad credit in New York City, those are only for primary residences. Secondary homes will often require a 700 credit score or above.
• Excellent renting behavior. Along with the regular things landlords check for when looking at credit scores, they may also make a point of asking for additional references.
• 10% to 20% down. Yikes! A high down payment might be avoidable for a primary home, but not for your vacation home.
• High earnings. Your income and assets will play a part in approvals from most lenders.
• Distance. Many lenders will only finance your home if it’s 60 miles away or more from your primary residence.

If you're interested in finding out your purchasing power, use our Mortgage Affordability Calculator.

Furthermore, costs will vary considerably depending on what you plan on doing with the property; for example vacation home vs. rental income property.

If it sounds like a lot of red tape, that’s because it is.

Buying a pied-a-terre can be a serious hassle, which is why cash purchases are often recommended.

Find out more about the purchasing process by reading What You Need to Know Before You Buy Property.

Do Property Taxes Change With A Second Home?

Yes, they do. Secondary home taxes are usually far lower than what a primary resident would pay.

The current tax laws only require you to pay taxes to the state and city of your primary residence.

That being said, if you spend more than 183 days in New York City, you will be asked to pay NYC property taxes.

So, spend your time wisely and consult a tax specialist if you’re worried about this being an issue.

Can you claim mortgage deductions on a second home?

Though you might not have to pay any property taxes on your pied-a-terre, that doesn’t mean that you won’t be able to use them to get benefits by tax time.

Laws currently allow home buyers to write off mortgage interest deductions on secondary homes, up to your primary residence’s limit.

If you paid off your primary residence and want to save on taxes by April, claiming your secondary home’s mortgage interest as a deduction can be an excellent way to lower what you owe.

Can I deduct my property taxes from my second home?

The national limit on how much you can deduct from property taxes is currently $10,000.

If you have a primary residence that charges less than $10,000 per year in property tax and currently pay property tax on your NYC residence, you’re in luck.

Current laws allow you to write off that extra property tax up to the national limit regardless of whether it’s your primary or secondary home.

However, taxes change entirely for an investment property as this is an income-producing property, which may be to your benefit.

The investment property works, in a way, as a business.

You can actually deduct expenses related to the upkeep and management of the building, as well as maintenance charges, mortgage interest, and depreciation.

The IRS allows you to depreciate the value fully over the course of 27.5 years.

If I rent out my pied-a-terre, will I have to report that income?

Unfortunately, the money you make while you post your home on Airbnb is going to have to be reported to the IRS.

That being said, you are able to deduct expenses that are related to renting out your home.

Are there any tax credits and breaks that only primary residences can get?

With all the tax perks that you can get from a second home, it’s tempting to just ask for all the deductions you can get.

Sadly, there are some tax credits that only apply to primary homes. These include:

• The STAR Credit. This is a tax credit that was designed to get primary homeowners a better chance at financial success. As a result, it can’t be used for secondary homes.
• Capital Gains. Capital gains tax breaks are only able to be declared if you lived in your home as a primary residence for a set amount of time.
• Home Office Expenses. Depending on your residency, you may or may not be able to add this to your secondary home’s taxes.

Are second homes always more expensive than standard homes?

There’s a very common belief that pieds-a-terre's are going to be more expensive than any primary residence by default.

This just isn’t true!

You can get a pied-a-terre in New York City at the same price as a budget apartment.

Of course, you’re not going to be able to find much in the best neighborhoods in Manhattan for a budget price.

That being said, if you’re just using this home as a getaway location, that probably won’t matter too much.

Primary Residences vs. Secondary Homes: Approvals

Along with having a hard time getting financing, even getting approval to move into a secondary home can be a chore.

Most multi-unit buildings are leery of pied-a-terre buyers and believe them to be a risk for the communities inside the building or simply prefer to have primary residences only.

Many, if not most, co-ops and condos don’t allow their properties to act as secondary homes and reject applicants based on that alone.

Those that are open to secondary home buyers often will have special stipulations about what can and cannot be done with the property.

This can include a ban on renting out the property or subletting it while you’re present.

What are your best options for a second home approval?

The type of property you’re buying will drastically affect your chances of getting approved for a second home.

Co-ops are notoriously strict, even for primary residence applicants. So, you might want to avoid applying for a co-op right off the bat.

If you have the money to do so, it’s best to avoid co-op applications and just try for a condo or a house.

Condos are less likely to have residency restrictions and still offer a decent amount of maintenance built into the cost.

How is residency enforced?

Considering how hot real estate is in New York, it’s not surprising that people regularly try to skirt residency rules by lying about their time spent in the city.

Having a second home can lead you to undergo what’s known as a “residency audit” by building boards or even by tax officials.

If you’re suspected of lying about your primary residence, officials have the right to check your claim by inspecting your home and documents. This can include looking for:

• Your main place of work
• Your most commonly used mailing address
• Which home contains your personal possessions

If you’re caught lying, you could get into legal trouble, owe taxes, or even lose your home.

Why Get A Second Home In NYC?

If you aren’t a New Yorker by nature, buying a home in the city might seem a bit strange.

After all, it's seriously pricey real estate and vacation homes can be found for far cheaper elsewhere. Even so, people snap up homes every day for a variety of reasons, including:

A second home for potential profit

Owning real estate in New York City lets you build equity and gives you a way to gain passive income through renting.

Renters are always easy to find here, which means you’ll never have to work hard to find someone to occupy your home while you’re away.

To learn more, read on How to Buy an Investment Property in New York.

Buying property for work-related reasons

Thousands of people regularly work between New York and California.

If you have an extreme multi-state travel routine, a home in the city can make life easier for you.

Some in the workforce need to commute bi-weekly or monthly.

Either way, having a regular place to stay in the city can take some of the stress out from traveling for work.

Some New York City residents who find it difficult to get privacy for their work in their primary residence might opt to purchase a secondary residence.

It's not uncommon for artists/artisans to get a second place to call their studio or workspace while having the comforts of a home.

The property could even be a small studio apartment where a musician can practice in private.

This can also be a great place for a writer to get some work done.

A home for students

If you have the extra income and your adult child is attending a university in the area, it may work out for your family to purchase an apartment for their studies.

It will give you peace of mind regarding your child's living situation, as well as a place to stay if you plan on visiting.

When graduation rolls around your graduate can choose to stay or it can transform into an investment property.

Generally, properties around universities do fairly well value-wise.

Find out about renting for your student instead by reading How Can a College Student Rent an Apartment in New York.

A pied-a-terre for purely vacation purposes

New York City is not only one of the top tourist destinations in the country but also can be very expensive.

Once you total airfare, accommodations, and the general cost of getting around the city, you may be flat-out broke.

For many, a visit to New York is a once-in-a-lifetime dream vacation.

If you plan on regular visits, buying an apartment may make more sense than sleeping on couches or dishing out a ton of money for hotels.

Having a place is New York is a status symbol

Owning a New York home is a serious status symbol in many circles. It’s a nice bragging right, for sure!

New York City has a cache that no other city in America can provide.

When Would It Be Best To Use NYC As Your Primary Residence?

With a city as expensive as New York City, it’s easy to see why people might want to avoid the high property taxes while still gaining a place to live here.

However, having a pied-a-terre in the Big Apple isn’t for everyone.

The truth is that living in New York City full-time (or as a primary residence) makes a lot of sense for many people.

This is particularly true if any of the following holds water.

You work in New York City.

If you have a house elsewhere but you have a full-time job in NYC, chances are high that a secondary residence that’s out of state will lead to a tax audit or similar issues.

Anyone who has a job here would be best off having NYC as a primary residence.

You use most of NYC’s amenities on a regular basis.

Do you have kids that go to a public school?

Do you vote in NYC elections, or regularly take the subway? You have a primary residence here, by law.

It’s your primary residence in the United States.

If your secondary residence is abroad, chances are high that it makes more sense to have an NYC primary address than it does to file it as a second option.

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