Thread: Proceeds taxed?

Since this is an investment property I would assume you would be subject to the 1031 tax laws, which means you can defer taxes by rolling the profits into another investment property. I do not believe your personal resident will classify.

You need to talk to an accountant, but I would totally assume you will be responcible for taxes on 100% of the gain. Once again you need to talk to your accountant.

I agree with Jim, everything I know tells me you are responsible for the taxes. However, I am not an accountant and you should really contact one about this.

This is NOT tax advice. I am not an accountant !
This is my opinion !

If you have owned the vacation home for longer than 1 year (which it sounds like) then you will be liable for capital gains tax on the gain.

What did the house costs, what did improvements costs, what did it sell for, and what were the transaction costs. With that you can calculate the gain.

You can do what is called a 1031 tax exchange. Costs about $750 to do the exchange with a company that specializes in this.

You would sell your vacation home and specify a replacement property in the 45 days after closing. Then you have 180 days to close on the replacement property. The price for the new property can not be less than the one you just sold.

Do some online searching on 1031 exchanges.

Vacation properties generally do not qualify for 1031 exchange treatment because the property is held for personal use. Vacation rentals may qualify depending on the circumstances.

The paydown of your mortgage on your personal residence will not qualify for 1031 exchange treatment. The paydown on a mortgage is not considered to be an acquisition of real estate.

The IRS issued Revenue Procedure 2008-16 this year that addresses when vacation properties will qualify for 1031 exchange treatment. You can visit exeter1031.com/article_vacation_property.aspx for more complete details.

A vacation property is not an investment property and therefore not eligible for 1031 from my understanding, however I would sugges you seek the guidance of a CPA. If you had lived in the proprty for 2 of the last 5 years you could avoid up to $250,000 in taxable liability if single or $500,000 if married. Yet, your case does not seem to match this scenario or the investment property scenario. Therefore I would say that you will incur capital gains. Since my assumption is that you lived in the property for more than one year you should only have to pay long term capital gains tax. The last I checked the rate was 15% but you should check with a CPA to make sure.

It might depend on the state you are in and the amount you earned.

For future reference, a 1031 exchange needs to be set up in advance of the sale. The owner is not supposed to get his/her hands on any of the proceeds of the sale. It all goes directly into the purchase of the new property.

This is just an update regarding the 121 exclusion when you sell your primary residence. The Housing Act of 2008 contained a provision where the amount of tax-free gain can be reduced by the amount of time the property was used for other than your primary residence (after 01/01/2009) . It is more complicated than this, but wanted to get this post in here in case you were looking at a vacation rental that would be converted into your primary residence or vice versa.