Sale of a second home.

[Harrymague]

 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??

[DS30 · Accepted solution]

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:

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on” (jump to full list or see more income)
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section)
6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. Choose type of investment you sold - select Second Home
9. Some basic information:
1. Description –  Usually the address of the property sold
2. Net Proceeds – Net proceeds from the sale 
3. Date Sold – Date you sold the property
10. Tell us how you acquired the property - purchased
11. Any business or rental use? - if no, then select personal use only (Please note, if personal use only, you will not be able to deduct the capital loss since no capital loss is allowed for a personal use capital asset.)
12. Some Basis information
1. Date Acquired
2. Original cost basis (including any cost of capital improvements)

[Coleen3]

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.

[windowdressing]

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.

[Irene2805]

A sale of a second home is considered a sale of an investment.  To report this in TurboTax, please follow these steps:

TurboTax Online

1. Click on Federal > Wages & Income
2. In the Investment Income section click on the Start/Revisit box next to Stocks, Mutual Funds, Bonds, Other.  If you have already entered some investment sales, you will see a screen Here's the investment sales info we have so far.  Click on the Add More Sales link. 
3. If you haven't yet entered some investment sales, you will see a screen Did you sell any investments in 20XX?  Click the Yes box.
4. On the screen,  OK, what type of investments did you sell? mark the Other box and click Continue.
5. When you get to the screen, Now we’ll walk you through entering your sale details enter the details of the sale.  You will be able to select the type of investment in the first box [second home, land, etc.]  [See Screenshot #1 below.]
6. Enter the requested information and click Continue when done.

TurboTax CD/Download

1. On the Wages & Income screen, in the Investment Income section click on the Start/Revisit box next to Stocks, Mutual Funds, Bonds, Other.  If you have already entered some investment sales, you will see a screen Here's the investment sales info we have so far.  Click on the Add More Sales link. 
2. If you haven't yet entered some investment sales, you will see a screen Did you sell any investments in 20XX?  Click the Yes box.
3. On the screen,  Did you get a 1099-B or brokerage statement... click the No box.
4. On the screen, Tell us about this sale, mark the radio button, I'll enter one sale at a time.
5. Enter the information in the boxes that appear.  You will have to type in Second Home in box 1a.
6. Enter the total sales proceeds as well as the other information requested.  [Screenshot #2]
7. Continue to the screen, Select any less common adjustments that apply.  
8. Mark the first box The reported sales price did not deduct all fees or selling expenses.  [Screenshot #3]  
9. Enter the sales expenses not deducted from the sales price entered earlier.

Screenshot #1

Screenshot #2

Screenshot #3

@windowdressing

[KDPAE97]

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!!

[ColeenD3]

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:

• Agent commission
• Transfer tax
• Title insurance
• Escrow and closing fees
• Prorated property taxes
• Credits toward closing costs
• Attorney’s fees

[btrhH1971]

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?

[btrhH1971]

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?

[RaifH]

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.