Purchased condo for $200,000.00. Sell for $400,000.00. During the 15 years you own the condo, you pay off the original mortgage, but take out loan against the second home and at the time of the sale, you still owe $100,000.00 on the second mortgage. What do I report as the net profit of the sale??
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The calculation of your net profit reportable to the IRS will not be affected by any outstanding mortgage when you are entering this information to determine your capital gain or loss on this sale of second home. In other words, regardless of how much cash you actually receive on the sale (net sales proceeds less mortgage payment amount) will not affect the capital gain or loss reportable to the IRS on this sale.
Your reportable net gain or loss on the sale will be your net sales proceeds (gross sales amount less any selling costs (not including any outstanding mortgage repayment)) less your cost basis in the property.
Click this link for further information about reporting the sale of a capital asset
Please note - the IRS does not allow a capital loss on the sale of personal use property. This rule applies to the sale of a vacation/second home that was a personal use property. The TurboTax system will enter a capital loss of zero for this transaction.
To enter this transaction in TurboTax, log into your tax return (for TurboTax Online sign-in, click Here and click on "Take me to my return") type "investment income (gains and losses)" in the search bar then select "jump to investment income (gains and losses)". TurboTax will guide you in entering this information (see step 6 below)
Alternatively, to enter this transaction in TurboTax Online or Desktop, please follow these steps:
The calculation of your net profit reportable to the IRS will not be affected by any outstanding mortgage when you are entering this information to determine your capital gain or loss on this sale of second home. In other words, regardless of how much cash you actually receive on the sale (net sales proceeds less mortgage payment amount) will not affect the capital gain or loss reportable to the IRS on this sale.
Your reportable net gain or loss on the sale will be your net sales proceeds (gross sales amount less any selling costs (not including any outstanding mortgage repayment)) less your cost basis in the property.
Click this link for further information about reporting the sale of a capital asset
Please note - the IRS does not allow a capital loss on the sale of personal use property. This rule applies to the sale of a vacation/second home that was a personal use property. The TurboTax system will enter a capital loss of zero for this transaction.
To enter this transaction in TurboTax, log into your tax return (for TurboTax Online sign-in, click Here and click on "Take me to my return") type "investment income (gains and losses)" in the search bar then select "jump to investment income (gains and losses)". TurboTax will guide you in entering this information (see step 6 below)
Alternatively, to enter this transaction in TurboTax Online or Desktop, please follow these steps:
A second home is a capital asset. It does not get the benefit of a exclusion like a primary residence or the ability to generate a loss like a rental property. It is the straight-forward sale of the asset.
The gain is determined by the difference between purchase price plus improvements and the sales price. The mortgages have nothing to do with the sale reported to the IRS. You took out a loan and used the money for some purpose and now you have to pay the loan back. A mortgage is backed up by the property, but it is still just a loan. In the example you gave above, your gain would be $200,000.
Sale of capital asset - second home.
I have a 1099 -S and would like to complete form 8949 and Schedule D. The asset was sold at a loss.
A sale of a second home is considered a sale of an investment. To report this in TurboTax, please follow these steps:
TurboTax Online
TurboTax CD/Download
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This was a very helpful reply! I am in a similar situation.
We bought land in January 2021 and constructed a home on it that wasn't completed until 2022. Once it was completed in January 2022 we put it on the market. It is currently under contract. Do we consider this a second home or investment property?
How do we record this in 2021? Can we deduct interest and property taxes? Or do we save that deduction and capitalize it so we can deduct when determining our cost basis?
Can we deduct staging costs? lawyer fees? Are we able to deduct the cost of appliances, hardware (knobs, mirrors)? Thank you!!
A second home is investment property. The purchase price of the land and the costs of construction form your basis. Everything you spent to create the home is part of the basis.
Staging costs are not added to the basis. The following can be.
Seller closing costs are made up of several expenses. Here’s a quick breakdown of potential costs and fees:
I have the sale of a 2nd home I had for 20 years with no 1099. Do I understand that to account for the capital improvements I add that cost to the cost basis? I need not itemize those expenses anywhere else?
Maybe I'm not making myself clear. I'm looking at the mechanics of accounting for the capital improvements. Do I simply add it to the cost of the property giving me the cost basis? Does the cost basis need to be list anywhere else or I just list those totals and go with that?
Yes, any capital improvements you made to your second home can be added to the cost basis. You want to keep records to justify your reported cost basis, but no further reporting needs to be done on your tax return. The IRS provides guidance as to costs that can increase your basis, as well as things that can reduce your basis.
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