This time of year, most Americans living in the northern half of the country are dreaming of sunshine. But there’s a heartier, usually affluent breed that can’t get enough snow. In Vermont, at resorts like Killington and Stowe, Ivy League students spend weekends hitting the slopes by day and donning LL Bean sweaters to sip Irish coffee by fireside in the evening. In Aspen, their parents test their aging knees on the mountain before negotiating deals over dinner at the Hotel Jerome’s J-Bar. The ones who can afford it skip the check-in lines at the hotel and buy their own homes.
There’s no shortage of ski destinations here in the United States. You can even go skiing in a mall in New Jersey. But the real ballers know the most glamorous slopes are abroad — especially in the European Alps. Places like Gstaad and Zermatt in Switzerland, or Courcheval and Chamonix in France, are where you go to impress your fellow 1%ers. All of them offer suitably high-end real estate for your vacation home dollar. But lately, France is where the action is. Why? It’s not because of the mountains, or the snow, or even the apres-ski action. It’s because of taxes.
Here’s the issue. Most people who buy a ski chalet don’t actually use it more than a few weeks a year. Kids are in school, work and clients are calling, and there’s a villa in St. Bart’s competing for vacation time. That leaves a lot of empty beds that could be filled with people paying for lift tickets, ski lessons, and €30 cocktails. How can governments encourage homeowners to fill those “cold beds” with warm bodies to replace that lost revenue?
In France, they’re using taxes to solve the problem. They’re refunding the usual 20% value-added tax on purchases of newer homes to buyers who agree to rent them to vacationers. (That effectively cuts the price by one-sixth.) They’re also cutting the usual 7% transfer tax to just 2%. And it’s working — area real estate agents report 80% of buyers say the tax break factored into their decision. One consultant estimates the rebate has saved its own buyers €15 million.
Of course, you can’t just pinkie-swear to list your chalet on AirBnB and call it a day. There’s paperwork. You have to commit to renting the property for the next 20 years. You have to hire local managers to provide check-in, breakfast, linen, and room-cleaning services. If you pull it back off the rental market, you have to refund a proportionate share of the tax rebate. France is almost as famous for red tape as it is for red wine, so the bureaucracy is considerable.
Ski chalets aren’t the only vacation properties that sit empty most of the year. Yacht buyers can spend a year customizing a hull, finding the right crew, and stocking it with toys like jet skis, only to leave it docked for 11 out of 12 months. While there aren’t any tax breaks specifically designed to get yacht owners to charter their boats, here in the U.S. you can deduct the interest you pay to buy your boat as second-home interest, so long as the boat includes sleeping, cooking, and bathing facilities. (This assumes you aren’t already deducting a second home somewhere else.)
Which vacation floats your boat: renting on the beach or a renting on the slopes? How about renting your home to your own business for up to two weeks’ tax-free income? Call us before you book your ticket and let us help you plan to afford the vacation of your dreams!