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Vacation home capital gains tax

We are selling a vacation home (condo) to close on Nov 18. Est. Cap Gain 118,000.

1. How do I report this cap gain & calculate tax liability?

2. When do I have to report this, before I file my 2024 tax return (April 15) or ???

  2a. Can I use TurboTax to report this? How?

  2b. If tax due before 2024 return, do I use TurboTax 2023 or 2024?
3. Does selling a vacation home (condo) and using the all proceeds to purchase a single family home to use as a rental qualify as a 1031 "like-kind" swap.

4. If 1031 possible, are there any implications to the 45 day identification period and 180 day period extending into 2025 calendar year?

 

Thanks in advance...

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5 Replies

Vacation home capital gains tax

you report capital using form 8949

if you close in 2024 it's reported on your 2024 return

yes Turbotax can handle it since it will be reported the same as a sale of a security

cant say when tax is due, you may need to make an estimated payment for 2024 by January 15, 2025

here are the safe harbor rules to determine whether an estimate would be required to avoid penalties for underpayment of estimated tax. if payment is needed, because payment is occurring in the 4th quarter you'll

need to use the 2210 annualized income installment method.  However, maybe you can increase withholding in lieu of estimates.  The reason is that an estimate only counts in the quarter made while withholding is presumed to occur evenly each quarter though you're allowed to use actual for each period (not to your benefit in this situation)

 

There will be no federal penalties for not paying enough taxes during the year if withholding
1) and timely estimated tax payments equal or exceed 90% of your 2024 tax or
2) and timely estimated tax payments equal or exceed 100% of your 2023 tax (110% if your 2023 adjusted gross income was more than $150K) or
3) the balance due after subtracting taxes withheld from 90% of your 2024 tax is less than $1,000 or
4) your total taxes are less than $1,000

The lower of 1 or 2 is your required annual income tax payments. 1 is difficult to know until the year-end so generally option 2 is the safer option. Under the simplified method 25% of the estimated taxes must be paid in each quarter by 4/16, 6/17, 9/16, and 1/15/25. Unless you can show otherwise 25% of your annual withholding is assumed to occur in each quarter.

Failing this and being subject to penalties you can use the annualized installment income method.
This method requires knowing your income and deductions thru 3/31, then 5/31, then 8/31, and finally year-end which should be the same as the tax return. The income is annualized. taxes are computed on the annualized income and then de-annualized. Your tax payments for each period must equal or exceed these amounts to avoid penalties.

if you can increase withholding to meet the minimum payment required each period, then paying the estimates is not required.

form 2210 page 3
https://www.irs.gov/pub/irs-pdf/f2210.pdf

state laws vary

 

 

 

Only rental real estate or real estate use in a trade or business qualifies for 1031. a vacation home that is never rented out does not qualify so you will be taxed but nothing prevents you from using the proceeds to buy rental real estate except you still owe the tax.

 

the rules to do a 1031 on a vacation home

For properties being relinquished in a 1031 exchange, the owner should:

1) Have owned the property for at least 24-months before you sell it for the exchange.
2) Occupy the property personally no more than 14 days in a calendar year, or no more than 10% of the total amount of days you rent the property out at fair market value (FMV).
30 Within 12-months, rent the property for fair market value for more than 14-days in the calendar year.

 

assuming the vacation home does not qualify for 1031, you can convert it to rental but I strongly suggest you discuss this with a tax pro.  There are fees associated with a 1031 exchange which could easily exceed the taxes you would pay on the gain 

 

 

 

Vacation home capital gains tax

 

Vacation home capital gains tax

Thanks Mike9241,

I had to read you answer 3 or 4 times but I finally think I understand it. Since I don't have to send the IRS any money until 1/15/25, as soon as I get TurboTax 2024 (late Nov.) I plan to run a preliminary 2024 return then send the total tax in one estimated payment and let the IRS send me a refund later so I don't have to send quarterly payments in 2025.  Is this viable? Since I did not have to send estimated payments from when I filed for 2023, what form do I use (I can't just stick a check in an envelope and mail it to the IRS)?

 

(Note, without this one time vacation home sale, I normally have 10% withheld from my retirement and always get a refund. I expect 2025 to return to normal.)

 

I've decided to drop the entire 1031 idea.

 

Glenn

TomD8
Level 15

Vacation home capital gains tax

"...what form do I use (I can't just stick a check in an envelope and mail it to the IRS)?"

 

The easiest and safest way to make an estimated tax payment is online, via the IRS website:

 https://www.irs.gov/payments

 

If you do this, be sure to indicate the tax year for which you are making the payment.

 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

Vacation home capital gains tax

Yes! Thank You, I didn't know the IRS had that.

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