Captial Gains On Second Home
I have a second home that I purchased 2 years ago. I want to sell it and purchase another 2nd home.
I purchased the first 2nd home for
$515,000 my realtor told me I could get somewhere around $850,000 for it.
I plan to re-invest 90% of the captial gain into my new 2nd home.
I do visit the property approx. 12 times a year. Can I avoid paying any capital gains
tax? If not, would need to pay on the total amount or just the 10% I did not re-invest. Thank you!
If you have been renting the second home, it may be eligible for a 1031 tax deferred exchange. Otherwise, you will not even qualify for long term capital gain tax eligibility since you are not using the home for business purposes. If you convert it into a rental and hold for a while you may be able to do a 1031 tax deferred exchange.
I acquired a property last year and was looking to exchange it rather quickly and had not even collected rent. A qualified intermediary (for 1031 exchanges) told me that since my intent was for business purposes, even though I had not collected rent, I could have done a 1031.
You might contact a qualified intermediary and ask how long you would need to hold the property as a rental. They are easy to find. Just do a GOOGLE search for "1031 exchange"
I hope this helps.
Regards,
Ed
Let me clarify what edmeyer is saying.
Your personal residence and your second home are not eligible to participate in a 1031 tax-deferred exchange.
Your second home does not qualify for the capital gains exclusion on the sale of a primary residence.
The profit on your second home is taxable as a long term capital gain. Fortunately, the maximum long term capital gain tax rate was reduced to 15% in May 2003 and will remain at 15% until December 31, 2008. In 2009, the maximum capital gains tax rate will increase to 20%.
It does not matter how much of your profit is reinvested in a new property. Your tax liability will not change.