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


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