Weldon and Patty have a principle residence and a vacation home. They would like

Question

Weldon and Patty have a principle residence and a vacation home. They would like to sell the vacation home, but they don't want to pay tax on the considerable gains they will realize. What do you advise them?

They can establish the vacation home as their principal residence for two years and then sell it to exclude at least some of the gain. They do not have to live 100% of the time at the vacation home. They can also spend considerable time at their (formerly) principal residence.

They can establish the vacation home as their principal residence for two years and then sell it to exclude $500,000 of the gain.

There is no method of excluding any of the gain on the sale of the vacation home, so they should be prepared for a large increase in their tax bill.

They can exclude up to $500,00 of gain on the sale of a vacation home if they have owned it for two of the last five years.

Explanation / Answer

b) If Weldon & Patty are a married couple, they can establish the vacation home as their principal residence for two years, and, then sell it to exclude $500000 of the gain.

The two years are the 2 years out of the last 5 years. Reduction of $500000 is on the capital gains for the married couple, for a single person it is $250000.

The tax is on the price at which the house is sold minus the sum of the closing costs, and, the sum paid for the purchase of the vacation home.

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