A taxpayer can deduct the interest on a second or vacation home. To qualify, the home must have sleeping accommodations, a toilet, and cooking facilities. Thus, vacation homes, condos, mobile homes, travel trailers, recreational vehicles, and some boats qualify as homes.
The parents reduced their taxable income by $5,000 by deducting the interest on their second or vacation home. Since the parents income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%).
If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by deducting the interest on your second or vacation home.