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


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