When purchasing a lake house, you have a couple of approaches: 1) purchase for personal use or 2) purchase as an investment that includes renting the house out. Lets discuss these options.
Personal use. This is pretty straight forward. It works just like your primary home with the mortgage interest being your one tax deduction. This is your only real option if you are going to use the lake home a lot.
Investment. This is trickier but can allow you the ability to purchase a lake house, provide you income, and a huge tax deduction. The trick here is that you cannot use the lake house more than 2 weeks out of the year. Here is the trick there….if you are doing maintenance to the property, it does not count against your two weeks. Keep good documentation of your visits that are not personal use.
So how does this work. Lets say you bring in $20,000 in rental revenue. You can reduce the taxable amount by the expenses you incur (mortgage interest, utilities, toys used by renters, yard maintenance, repairs, insurance, property taxes, etc.). Now the big one: depreciation!
You should not expect that the revenue will completely pay for the house but it will pay for the expenses of owning and put a little extra cash in your pocket.