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Woot.com is an online store and community that focuses on selling cool stuff cheap. It started as an employee-store slash market-testing type of place for an electronics distributor, but it’s taken on a life of its own. They sell one item per day until it is sold out or until 11:59pm central time when it is replaced. However, each item they sell is in stock and typically ships within 2-3 business days. They offer a new item every single day. The product is released every morning at 12am central time, seven days a week. (If you’re not a morning person, this can be described as every night at midnight Better?) If a product sells out during its run, a new item will not appear until the next release time. You will know if a product is sold out, because the main page says “SOLD OUT” instead of “I want one”.

By Neil Johnson

A vacation home is referred to as a “second residence” under the tax code. It must have sleeping, cooking, and toilet facilities to be eligible for the mortgage interest deduction. Any type of home can be designated a vacation home that contains these amenities – a single-family residence, a condominium, cooperative unit, houseboat, mobile home, or house trailer.

For taxpayers who itemize their deductions, taxes incurred with respect to real estate (including a vacation home) are fully deductible under the regular tax system, but not under the alternative minimum tax (AMT)

There are special rules regarding deducting mortgage interest. The homeowner designates a second residence in addition to their main home. Interest is deductible on the second residence to the same extent as that allowed for the main residence; that is, interest on up to $1 million of indebtedness, in total, to buy, construct or improve a principal or second residence, or both.

In addition, interest incurred on a home equity debt secured by either a principal or second residence, and not exceeding $100,000, is also deductible under the regular tax system, but not under the AMT. If you rent your vacation home for 14 days a year or less, the income received is not taxable. This is good news for those who rent their vacation homes for a short period during major festivals or sporting events.

Note: Evidently Hollywood is abusing this loophole by characterizing prize money as rents and tenant improvements. Expect Congress to eliminate the 14-day loophole once it discovers Hollywood’s tax-dodging shenanigans.

Because of the limitations on itemized deductions and the rules regarding the AMT, it could be advantageous to rent out your property to shift a portion of your mortgage interest and property tax deductions to the real estate rental schedule (Form 1040, Schedule “E”).

Once you rent your vacation home for more than 14 days or 10% of the number of days the property is rented (the 14 day/10% rule), whichever is greater, the rules change.

There are complex regulations covering this subject, but in most cases you do the following: First, you include all rental income, but deductions are limited by a fraction, the numerator of which is the number of days the unit is rented out and the denominator is usually 365. Assume the unit is rented out 100 days, then the fraction for determining your allocable rental expense is 100/365. You then multiply all rental-related expenses, including advertising, commissions, maintenance, depreciation, utilities, taxes and mortgage interest by the fraction to determine the deduction against rental income. The 14 day/10% rule is applied each calendar year.

For example, if you incurred $10,000 in rental-related expenses, your deduction would be $2,740 [(100/365) x 10,000 = $2,740]. If you received $5,000 in rental income, you would report a gain. However, if your rental-related expenses exceeded $5,000 you would have a loss, but could not offset the loss against other income. You carry the loss forward to future years until you have enough rental income to offset it.

Note: Mortgage interest and real property taxes allocable to your personal use are still deductible as an itemized deduction. In the example above the personal use days were 265, so the fraction for determining personal use is 265/365 or 72.6%.

If you rent a residence for 15 days or more per year, and your personal use of the property exceeds the greater of 14 days per year or 10 percent of the days rented, your residence will be considered a vacation home for tax purposes. All rental income you receive will be reportable. Along with the usual deductions for casualty losses, property taxes, and mortgage interest, you may be able to deduct expenses for insurance, repairs, utilities, and depreciation (under certain conditions).

Once you fall into the vacation home scenario, you will not be entitled to the $250,000 capital gain exclusion on the sale of a personal residence.  There are two strategies available to save on taxes when selling your vacation home:

a.) Move into the vacation home and convert it into your principal residence. You must live there as your principal residence for at least 24 of the 50-month period prior to sale. By converting your vacation home into a principal residence, single filers may exclude up to $250,000 in gain (married couples filing jointly may exclude up to $500,000).

b.) Convert the vacation home into a rental property at the beginning of the year and diligently avoid the 14 day/10% rule. Then use the 1031 exchange provisions for a like kind property, which must be used as investment property.

Note: There is no formula for the amount of time the acquired property must be used as investment property, although I recommend that you rent out the property for at least 12 full months and do not violate the 14 day/10% rule.

“Many of the world’s wealthy have moved from traditional tax havens of the Caribbean, Switzerland and the Channel Islands to Singapore,” says the Offshore Expert, Bob Bauman. “One of the prime reasons for this movement is pressure in those places from OECD member countries, most notably the United States.”

Lawrence Fong explains, “With the introduction of EU Savings Tax Directive – especially in financial havens like Switzerland, Luxembourg, and Jersey – Singapore has become a channel for avoiding these intrusive policies.”

“And in recent years, Singapore, known as the country run like an efficient corporation, has changed its marketing strategy… To ensure bank secrecy, Singapore made it a crime to breach the confidentiality of bank customers. They dictated penalties that are even stricter than Switzerland’s confidentiality laws.”

“Singapore companies have also become a much sought after brand in the realm of tax structures. After all, the Republic has a premium reputation of being a first class, legitimate, and respected business arena. Her companies do not get labeled as ‘offshore’ jurisdictions.”

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