Considerations for Owning a Vacation Home

Web Admin - Monday, August 31, 2015

Illinois real estate lawyerWhen owning a vacation home, there are several issues that need to be considered, including estate planning, how the property will be owned, and potential tax implications. If you plan on purchasing a vacation home with a friend or a family member, deciding how the property will be owned is important. Ordinarily, this type of ownership is what is known as tenancy in common. Under a tenancy in common ownership, each owner is named on the deed, along with each owner’s respective ownership percentage.

An alternative is for all of the prospective owners to form a limited liability company (LLC) and have it purchase and own the home. While this does create the additional task of forming the LLC, the individual assets of each member of the LLC are protected. A disadvantage is that the individuals of the LLC cannot claim property tax or mortgage interest deductions.

Tax Issues

The capital gains tax applies to the portion of the proceeds (upon the sale of a home) that exceeds the purchase price of the property plus the cost of any improvements made. For most taxpayers, the tax rate for long-term capital gains is 15 percent. An important provision of the tax code is the primary residence exclusion to the capital gains tax. This exclusion allows for married couples to exclude up to $500,000 ($250,000 for single owners) in capital gains for the sale of a principal residence.

Critically, the home must have been the principal residence (where you and your spouse live) for two of the last five years. This period does not need to be consecutively; rather, the home must have been the principal residence for a total of 24 months out of the last five years. The primary residence exclusion can be used multiple times, but cannot be used more than once every two years.

In relation to vacation homes, ordinarily the primary residence exclusion cannot be used (as a vacation home is normally not the principal residence). However, if the vacation home is established as the principal residence (by satisfying the two out of the past five year rule), the exclusion can be used. This may be very beneficial if a vacation home significantly increased in value.  

Passing Home to Heirs

Often, owners of vacation homes desire to keep those homes within the family. As a result, this requires planning for how the home will be passed down. There are numerous different methods of leaving property to a beneficiary. Each of those methods has different advantages and disadvantages. It is important to keep in mind that the following only briefly describes just three of the methods for passing on property. For more detailed information about estate planning, you should speak with an attorney.

For example, property can be passed to children or other heirs upon the owner’s death. This creates a step-up in basis for the beneficiary, which is a large advantage should the beneficiary sell the property. It also allows for the owner to retain complete control until death. However, it is not a tax-friendly option for the owner.

Alternatively, an owner can give the property as an outright gift. Under this method, the owner transfers the property by deed to the beneficiary. This accomplishes an immediate transfer of ownership. However, the federal gift tax limits the amount that can be transferred. Additionally, the step-up in basis is lost.

Finally, one option that is becoming more popular is to place the property into a trust for named beneficiaries. Under this plan, the owner reserves the right to use the property for a specified period of time. After the trust term expires, the beneficiaries take ownership of the property, with significantly reduced, or eliminated, federal and state taxes. Critically, for this method to work, the person who formed the trust must out-live the trust term.

For more information about the ownership of a vacation home, reach out to an experienced Illinois real estate attorney today. Our firm proudly represents individuals throughout the northwest suburbs, including the communities of Inverness, South Barrington, Arlington Heights, Long Grove, Mount Prospect, Riverwoods, Schaumburg, and Kenilworth.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.

A Beginner’s Guide to Applying for a Mortgage Loan

Web Admin - Thursday, February 20, 2014

illinois mortgage loan lawyerFor many first-time home buyers, the process of applying for a mortgage can seem complex. This guide will explain the basics of the process, such as the timeline for applying for a mortgage, the documents that applicants should procure and bring, and the credit score and down payment that applicants should expect.

The Mortgage Timeline

The mortgage process begins with a pre-approval application. The purpose of the preapproval process is to let the bank or lender look into the applicant’s finances, in order to make sure that they can afford a loan. This is when banks ask for most of the documentation. Often they want things such as:

- a list of addresses and landlords;
- a list of previous employers;
- pay-stubs from the previous one or two months, with a person’s year-to-date earnings included as well;
- the last two year’s W-2 forms;
- two months of bank statements for all accounts;
- a list of all debts not on the applicant’s credit report; and
- a list of all other real estate that the applicant already owns.

If the applicant has already found a house that they like, and their offer has been accepted, then the bank will also want the seller’s contact information and a copy of the contract. Being ready to provide these documents can help speed up the mortgage process.

Once a person goes through the pre-approval process and has made an offer on a house, the bank will order an appraisal on it. The appraiser will go through the house and determine the value, and then the bank will take their assessment into account when calculating how large a loan they can offer. Generally speaking, the bank will base their offer on either the appraisal value or the purchase price, depending on which is lower.

After the appraisal, the loan underwriter will look at all the documentation to make sure the loan is a good investment for the bank. From start to finish, the whole process usually takes about four to six weeks on the bank’s end, but timelines may vary, and asking the lender in the beginning may be a good idea.

Credit Scores and Down Payments

In addition to the array of documentation, lenders will also expect borrowers to have good credit scores and money available to make a down payment on the house. The rule of thumb for a conventional loan, according to U.S. News, is that a borrower would need a credit score of at least 650. Conventional loans also require, on average, a down payment of around 20 percent. Borrowers may have an alternative in the Fair Housing Act loan, which is a loan insured by the federal government. These loans offer a 3.5 percent down payment with a 580 credit score, and a 10 percent down payment with a 500 credit score.

If you are going through the process of buying a home, contact an Illinois real estate attorney today. Our team serves people in many northwest suburban areas including Inverness, Barrington and Long Grove.

About the Author: Attorney Jay Andrew is founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.

Recent Posts


estate planning for college students pedestrian accidents Illinois wrongful termination lawyer murder charges forming a corporation in Illinois workers comp Chicago corporate attorney pizza emoji breathalyzer test privacy laws Crystal Lake estate planning lawyer Illinois elder law attorney drug crimes lawyer Illinois home inspection Crystal Lake traffic attorney Arlington Heights wills and trusts lawyer real estate attorneys Rolling Meadows accident lawyer Illinois medical malpractice attorney boating accidents Home Remodeling Repair Act Illinois personal injury lawyers hands free device Palatine real estate lawyer Crystal Lake personal injury attorney insurance claim denials Illinois car accident attorney construction accidents murder defense irrevocable trust DNR Illinois traffic laws Des Plaines claims law firm drug crimes insurance dispute attorney dram shop law Arlington Heights tax lawyer Illinois boating accident lawyer power of attorney Buffalo Grove injury lawyer Illinois insurance claim dispute lawyer comparative negligence Self-Directed IRA Accounts Palatine insurance lawyer Illinois collections attorney Rolling Meadows real estate attorney Inverness accident lawyer Long Grove estate planning Chicago employment lawyer Inverness real estate attorney ACA Illinois medical malpractice lawyers traffic accidents unfunded trust personal injury claim blood alcohol content estate planning, death tax, succession plans, business estate plans, Barrington estate planning lawyers medical malpractice compensation Palatine personal injury lawyer Crystal Lake injury attorney Buffalo Grove probate lawyer back injuries trench injuries llinois Real Estate Lawyers Association Des Plaines insurance attorney Attorney Ken Apicella employment contract, employment law, employment at-will, Deer Park employment law attorneys, contract, blended families Crystal Lake law firm workplace sexual harassment Palatine criminal defense lawyer BAC right to work Rolling Meadows personal injury attorney premises liability sexual harassment employee misclassification Rolling Meadows estate planning attorney first degree murder Class A misdemeanor Barrington criminal defense lawyer Barrington Traffic Lawyer Illinois estate planning law firm commercial real estate condo association Rolling Meadows insurance lawyer life insurance policy traffic laws Palatine employment attorney startup company cell phone accidents eluding a police officer Arlington Heights lawyer Des Plaines personal injury attorney School Visitation Rights Act tax attorney Illinois Human Rights Act Illinois tax attorney real estate zoning Thanksgiving Arlington Heights employment attorney insurance claim denial Barrington estate planning attorney Illinois red light cameras Illinois workplace discrimination attorney product liability pet law Illinois construction accident attorney Illinois personal injury attorney drugs Rolling Meadows traffic attorney Illinois attorney icy parking lots bike accident Palatine drug lawyer Illinois estate planning caretaker rights Des Plaines criminal attorney healthcare underinsured motorist Chicago car accident lawyer Barrington criminal lawyer hiring employees homestead rights insurance dispute crossover accidents Deer Park workers compensation lawyer Chicago estate planning investment property Inverness injury lawyer Rolling Meadows Traffic Lawyer Long Grove estate planning attorney denial of life insurance real estate car accident lawyers Buffalo Grove law firm marijuana DMV rest breaks Arlington Heights car crash attorneys Illinois criminal defense attorney Illinois medical malpractice case Barrington civil litigation attorney whistleblower protections Schaumburg drug defense lawyer Barrington business law firm appealing an insurance claim pay when paid contract insurance dispute, insurance dispute lawyers, insurance claim denial, insurance claim delays, Rolling Meadows insurance dispute attorneys Palatine estate planning lawyer controlled substance Buffalo Grove employment lawyer Crystal Lake employment attorney Chicago will attorney, social media platforms, Illinois estate planning lawyer, Illinois jet ski accident lawyer civil litigation attorney Illinois medical malpractice claim Crystal Lake civil litigation lawyer Illinois driving without license Palatine corporate attorney texting while driving traffic offenses Buffalo Grove car accident lawyer Arlington Heights wills and trusts attorney employment attorney traumatic brain injury bad faith insurance claims business litigation income distribution deducation Inverness personal injury attorney Illinois employment laws Inverness elder law lawyer Des Plaines medical malpractice attorney Des Plaines probate lawyer home inspection lawyer Arlington Heights personal injury attorney car collision car accident lawyer Palatine construction attorney brain injury construction accidents, personal injury, wrongful death, Arlington Heights personal injury attorneys, workers' compensation life insurance installment contracts pedestrian injuries, pedestrian fatality sole proprietorship Arlington Heights traffic attorney Illinois personal injury lawyer consent to a search BAIID jet ski rumble strips pain and suffering traffic tickets denied insurance claims wage theft Palatine punch death Arlington Heights wills and trusts lawyers Crystal Lake personal injury lawyer Barrington attorney Rolling Meadows DUI lawyer Illinois traffic accident lawyer trust payments Chicago attorney Palatine probate lawyer Illinois law Barrington boating accident attorney construction contracts Landlord Tenant Ordinance Buffalo Grove real estate attorney Schaumburg probate attorney civil rights violation Illinois employment attorneys Palatine law firm Crystal lake insurance dispute attorney digital evidence denied insurance claim Rolling Meadows probate lawyer college kids Schaumburg injury lawyer real estate leasing paid sick leave Illinois living will Palatine employment law lawyer Arlington Heights wills and trusts attorneys Arlington Heights insurance attorney Long Grove wills and trusts attorneys loopholes special needs trust Schaumburg construction accident lawyer Deer Park traffic accident attorney PTSD Chicago lawyer Schaumburg elder law lawyer hit and run accident workers compensation ken apicella wrongful termination insurance negligence drug possession traffic crimes Rolling Meadows boating crash lawyer Illinois job attorney Affordable Care Act compensatory time Barrington employment law firm probate fees South Barrington real estate attorney Arlington Heights employment law attorneys taxes low-ball insurance settlement Palatine elder law attorney probate claims process Buffalo Grove medical malpractice lawyers Colin H. Gilbert foreclosure real estate lawyer auto accidents Schaumburg wrongful death attorney liability Illinois real estate Rolling Meadows Attorney Palatine injury attorney holiday statistics severance agreements subcontractor Liquor Control Act Inverness insurance attorney minimum wage Crystal Lake employment lawyer Illinois bicycle safety Crystal Lake medical malpractice lawyer employment law Do Not Resuscitate suspended license living trust benefits DGAA DUI capital gains tax defective products lawyer accidental death benefits federal crimes senior citizens real estate attorney Illinois employment law wrongful termination, employment law, whistleblower protections, Illinois employment laws, discrimination in the workplace Des Plaines motorcycle accident attorney Illinois workers compensation lawyer Schaumburg slip and fall fault based insurance Schaumburg civil litigation attorney speeding Rolling Meadows traffic law firm Crystal Lake employment law attorney criminal motorcycle accident lawyer uninsured motorist medication errors Chicago trucking accident attorney products liability Crystal Lake pedestrian accident lawyer caregiver drug crime Rolling Meadows insurance attorney Schaumburg medical malpractice lawyer Crystal Lake accident attorney owner responsibility wills Schaumburg personal injury lawyer personal injury lawyer personal injury accidents Palatine traffic accidents cell phone tower data food poisoning civil litigation FSLA traffic deaths elder law Mount Prospect wills and trusts lawyers Illinois employment law attorneys Long Grove real estate lawyer Palatine trusts lawyer preventable medical errors Illinois Wage Payment and Collection Act employment lawyer underage DUI Des Plaines injury law firm Barrington real estate lawyer estate planning Barrington personal injury lawyer Deer Park real estate law firm Des Plaines personal injury lawyers GM ignition switches Buffalo Grove corporate attorney Crystal Lake medical malpractice attorneys expungement Deer Park traffic lawyer Palatine workers compensation lawyer Fair Labor Standards Act Arlington Heights criminal lawyer Illinois traffic attorneys guardianship attorney Barrington drug crime attorney Palatine corporate law attorneys Buffalo Grove traffic lawyers rollover car crashes Illinois Sales Representative Act clemency cell phone living wills Buffalo Grove traffic attorney Home Sale Contingencies in terrorem provision ObamaCare trucking accidents license revocation Des Plaines personal injury lawyer Illinois insurance dispute lawyers filing a medical malpractice claim Des Plaines collections attorney deadly crashes Fourth of July Barrington personal injury attorney probate process Illinois pedestrian accident attorney no contest clauses Family Medical Leave Act Detainer Actions South Barrington real estate lawyer Inverness real estate lawyer corporate law Des Plaines DUI attorney overtime violations automated cars spinal cord injury Deer Park personal injury lawyer life insurance lawyer insurance adjusters unpaid overtime power of attorney for healthcare liens personal injury Long Grove estate planning attorneys traffic violations defense criminal defense Illinois estate planning attorney Whistleblower Claims Crystal Lake traffic lawyer insurance denials Crystal Lake bike accident lawyer child safety Crystal Lake car accident attorney internet Illinois employment law firm insurance disputes, Illinois insurance disputes, Illinois insurance dispute attorneys, denied insurance claims, Arlington Heights insurance dispute attorneys medical malpractice, missed diagnosis, delayed diagnosis, medical mistake, Deer Creek medical malpractice lawyers Rolling Meadows employment attorney Illinois employment law attorney IRA benefits Arlington Heights car accident lawyer car crash injuries Arlington Heights Traffic Lawyer Federal Food Drug and Cosmetic Act pedestrian-automobile accident Long Grove real estate attorney Food and Drug Administration's Food Safety Modernization Act car crash Buffalo Grove criminal defense lawyer car accident federal regulations for LLCs Palatine traffic lawyer boating DUI medical malpractice medical malpractice claims digital assets, digital fiduciary, estate planning, digital content, Long Grove estate planning lawyers insurance agents bicycle dooring accidents Des Plaines Traffic Lawyer Rolling Meadows drug defense attorney natural gas explosion Inverness probate lawyer vacation home Illinois business lawyer sexual images commercial leasing criminal law Illinois Probate Act of 1975 condo Illinois real estate lawyer insurance disputes problem employees Crystal Lake tax lawyer Deer Park medical malpractice attorney Rolling Meadows employment law attorney Illinois Workers’ Compensation Commission personal injury attorney spinal cord injuries Rolling Meadows car accident lawyers Rolling Meadows personal injury lawyer rollover accidents insurance claim dispute privacy estate plan Des Plaines drug crimes lawyer trusts rent to own real estate contracts Illinois probate lawyer DUI penalities Illinois rollover accident lawyers Arlington Heights personal injury lawyer contracts independent contractor comp time Schaumburg estate planning attorney Super Mario dog bites Inverness civil lawyer Arlington Heights medical malpractice lawyer Illinois wills and trusts attorneys vacation home fines preventing accidents Crystal Lake criminal defense attorney unpaid assessment revenge porn institutional trustee Kenilworth estate planning attorney fiduciary rule Illinois insurance claim dispute lawyers commercial leases Schaumburg personal injury attorney personal injury law firm Rolling Meadows business lawyer bicycle accidents Retaliatory Discharge foreclosed rental property Schaumburg estate attorney Legal Info personal injury claims overtime pay anesthesia errors Kenilworth estate planning lawyer Deer Park DUI lawyer Riverwoods estate planning lawyer IRA trust transfer Rolling Meadows marijuana attorney Barrington workers compensation attorney digital assets Schaumburg estate planning lawyer Rolling Meadows litigation lawyer license suspension Barrington employment law attorney Palatine civil attorney digital media accounts, estate planning, Arlington Heights estate planning attorney, medical research manufacturing Crystal Lake business law attorneys Illinois personal injury defective products FMLA Des Plaines tax law firm DUI attorney Schaumburg real estate lawyer boating under the influence Illinois will lawyer small business estate planning, digital assets, Revised Uniform Fiduciary Access to Digital Assets Act, Illinois digital assets, Illinois estate planning, Illinois civil litigation lawyer Buffalo Grove insurance claim dispute lawyers job lawyers coronavirus gift tax exemption, estate planning, estate planning strategies, Illinois estate planning, South Barrington estate planning attorneys Arlington Heights injury attorney Illinois wills and trusts liability claims driving trustee Rolling Meadows criminal attorney employment contract Illinois traffic attorney Illinois trusts attorney Rolling Meadows insurance dispute lawyers Barrington medical malpractice lawyers Palatine civil litigation lawyer Schaumburg car accident attorney marijuana crimes attorney Des Plaines pet law attorney Rolling Meadows personal injury lawyers Illinois workers compensation attorney Colin Gilbert insurance attorney Inverness DUI lawyer social media after death IRELA Schaumburg employment attorney fiduciary rule delay Rolling Meadows employment law attorneys Illinois LLC creation unauthorized overtime jet ski accidents license Schaumburg traffic lawyer Rolling Meadows criminal lawyer probate employee rights meal breaks employees Deer Park employment law attorney Palatine employment lawyer Crystal Lake car accident lawyer criminal record health insurance dispute Barrington estate planning lawyer Illinois insurance disputes Des Plaines civil attorney surgical mistakes Deer Park accident attorney modern family estate planning Rolling Meadows medical malpractice lawyers traffic violations Inverness traffic law firm advance healthcare directive disability benefits Illinois workplace lawyer truck collisions Arlington Heights TBI attorney Illinois business law atorneys Inverness corporate attorney trucking accident lawyers Buffalo Grove personal injury attorney new real estate form Illinois small business pregnant women Exclusions residential real estate Schaumburg personal injury lawyers Mount Prospect elder law attorney pedestrian accident Illinois Transfer on Death Instrument Crystal Lake medical malpractice law firm Palatine business attorney Illinois motorcycle accident lawyer Arlington Heights estate planning attorney Barrington employment attorney Buffalo Grove personal injury lawyer Illinois injury lawyer insurance claim delay Illinois DUI attorney Barrington injury attorney Chicago employment attorney mass shooting IRS Transfer on Death Instrument Crystal Lake will lawyer POA wills and trusts Illinois insurance attorney Deer Park criminal attorney personal injury, auto accident injuries, delayed injuries, serious injuries, Des Plaines personal injury attorneys TBI Des Plaines drug lawyer traumatic brain injuries nursing home negligence agent Rolling Meadows corporate lawyer natural gas employment law, meal breaks, rest breaks, hotel employees, Des Plaines employment law attorneys Arlington Heights trucking lawyer underfunded trust Schaumburg employment law attorneys Chicago estate planning lawyer Illinois Trust Code employee discrimination drunk driving car crashes gift taxes insurance claim dispute attorney Crystal Lake pet attorney Illinois employment lawyer reckless homicide Arlington Heights Attorney digital information attorney fees insurance claim Crystal Lake insurance lawyer estate tax DUI defense living trust vs will Mount Prospect real estate lawyer Forcible Entry pet bites Joliet general practice lawyers drunk driving statistics Barrington litigation attorney Chicago traffic lawyer Illinois insurance claim attorney wrongful death trauma after an accident operating agreements changes to mortgage law life insurance claims Illinois lawyer BUI insurance claims distracted driving accident victims Inverness estate planning lawyer real estate closing Illinois traffic ticket lawyer Des Plaines real estate attorney workers compensation benefits Illinois insurance claims lawyers Rolling Meadows insurance dispute lawyers, insurance dispute estate attorney landlord tenant law murder Illinois Policy Cancellation field sobriety test license reinstatement Kenilworth estate planning attorneys golf accidents estate planning lawyer texting and driving estate planning trusts Schaumburg Attorney fatal car accidents Arlington Heights pedestrian accidents car accidents Chicago biking tips dealing with problem employees distracted driving accidents slip and fall accidents Illinois corporate lawyer Des Plaines accident attorney financial advisors Rolling Meadows Schaumburg criminal attorney insurance denial appeals Illinois trucking safety Des Plaines real estate lawyer involuntary manslaughter Employment Discrimination Law Arlington Heights accident attorney dynasty trusts breach of contract Barrington Illinois estate planning lawyer Rolling Meadows tax attorney Chicago will attorney CAM living trust medical marijuana Chicago insurance claim attorneys Arlington Heights real estate lawyer mortgage creditors Jay Andrew estate planning attorney Illinois employee rights attorney. motorcycle accident head on collisions Illinois registered agent LLCs Chicago insurance law firm Schaumburg insurance lawyers work unions real estate contract Schaumburg criminal law attorney swimming pools healthcare claims elder abuse Illinois insurance lawyer Mt Prospect Attorney Illinois mortgages Illinois speeding lawyer deed transfer Illinois Smoke Detector Act Schaumburg corporate attorney probate claims Deer Park motorcycle accident lawyer Palatine Attorney landlord employment law, Illinois employment laws loss of consortium Illinois defective products attorney Illinois pet lawyer insurance agent negligence