Can I offset the 2015 taxes on the long-term gain from the sale of a second home if I used the gains from the sale to buy a new second home to start 2016?

[alvarezjprivate]

I am trying to understand whether I can offset my gains on the sale of a second home used as a vacation home as I used the proceeds to buy a bigger home? The new purchase occurred in January 2016.

[HelenaC · Accepted solution]

Unfortunately, no. You are referring to Section 1031 Like-Kind Exchanges. 

• Exchanges of personal-use property, securities, and inventory don't qualify as like-kind exchanges. 
• Even if you could do it, there are strict time restrictions for declaring the exchange. It cannot be done after the fact you have already sold your property. 
• You also must use a qualified intermediary or other exchange facilitator to hold those proceeds until the exchange is complete.
• See Like-Kind Exchanges Under IRC Code Section 1031 - IRS.gov

When you exchange (trade) business or investment property of the same nature or character (for example, vehicles or real estate), it's called a like-kind exchange. This gets reported on IRS Form 8824.

Generally, any taxable gain is deferred from a like-kind exchange, unless other non-like-kind property like cash is involved. Losses on like-kind exchanges are usually not recognized.

Related Information:

• Where do I enter a like-kind exchange (Form 8824)?