A second home in the mountains, on the coast, or even in a boat (with eating and toilet facilities) on the Colorado River can provide more tax deductions starting in 2004 ... if it meets certain criteria. Mortgage interest on a second home may be deductible if the mortgage does not exceed the fair market value of the home, and if the mortgages on both a primary residence and the second home do not exceed $1 million.

Points paid on the mortgage to acquire the second home may also be deductible if you itemize, but they must be amortized over the life of the loan rather than deducted completely for the year of purchase.

Tax deductions for second homes can be fun and lucrative, but we still encourage you to consult a tax professional for all the tax ramifications of a second-home purchase.