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vmarranca
Level 1

If I have a second home, how can I minimize the tax burdern?

I have a large amount of profit and want to buy a second home but am worried it wont qualify
6 Replies
MinhT1
Employee Tax Expert

If I have a second home, how can I minimize the tax burdern?

Please read this TurboTax article on tax tips and tax breaks on a second home. 

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vmarranca
Level 1

If I have a second home, how can I minimize the tax burdern?

Hey thanks for the article but it doesn't quite solve my problem.

 

I can't really consider making it my primary residence as the state it is in has different tax laws that would end up hurting me.

 

I was looking at the exemption rule that could be applied here, but it is very confusing around a second home.

JohnB5677
Employee Tax Expert

If I have a second home, how can I minimize the tax burdern?

For a second home, you can deduct property taxes on your tax return as part of the state and local taxes deduction.

 

Unfortunately, this is capped at a total deduction of $10,000 per year. That includes property taxes you pay on your primary residence and any state and local income taxes you pay.

 

If you are not going to establish residence in the second home it will not be eligible for the exclusion.

 

In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.

 

You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale.

 

Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.

 

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vmarranca
Level 1

If I have a second home, how can I minimize the tax burdern?

Apologies for not being clear.

 

i want to sell the second home (which has a large amt of profit) and purchase another second home in a different state.

 

from what I read there is an exclusion form (same value property) but dont know how to make sure my purchase qualify for those.

 

best

MaryK1101
Employee Tax Expert

If I have a second home, how can I minimize the tax burdern?

If you trade or exchange real property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind”.  See Like-Kind Exchanges.

 

@vmarranca

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vmarranca
Level 1

If I have a second home, how can I minimize the tax burdern?

HI Thanks,

 

Yes I've read that memo.

 

Just so worried because there are so many things that would rule it out and with COVID I wasn't able to rent the property last year at all so worried it wouldn't qualify or IRS/NY State might have some secret provision that doesn't allow me to use this exclusion.

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