Selling Your Second Home without Capital Gains Taxes

If you take the right steps, you can sell your second home without owing capital gains tax. When you have two homes, you will need to identify one for the IRS as your primary residence, and the other will be for vacation, investment or rental purposes. It is possible for you to switch which home is your primary residence, but you need to be able to prove the primary residence serves as such when you do so.

Avoiding Taxes

According to Section 121 of the IRS code, you can gain an exclusion from capital gains tax if you sell a primary residence that has held that distinction for at least 2 of the 5 years leading up to the sale. The exclusion is equivalent to a tax credit of up to $250,000 for an individual or $500,000 for a married couple.

This means that if you make your second home your primary residence for 2 of the 5 years leading up to its sale and have the ability to prove that with supporting documentation, you can avoid capital gains taxes entirely on properties that are valued at no more than the above amounts.

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