Sale of vacation home

[karlniemi]

• We sold our vacation home in Wisconsin this year for $419,000 and then purchased a lake lot in Wisconsin for $260,000. We plan on building a house on that lot in 2024. How will this affect our 2023 taxes?

[Anonymous_]

Assuming the vacation home was never used as a rental (or had other business use), any gain on the home will be based upon the difference between your basis (typically cost plus improvements) and the sales price (less selling expenses). If you owned the home for longer than a year, any gain will be long-term gain.

Your subsequent purchase on the lake lot will have no impact.

[DashonnonH]

Hi Karlniemi, in addition to tagteam's response. if your vacation home was used as a rental, you may qualify for a like-kind exchange for the sale and purchase of similar properties and value. The new property must be found and identified within 45 days. And must be purchased within 180 days from the sale of the original property or before the due date of your tax return, which ever date is earliest.

the IRS grants additional time to meet these requirements due to a Federally-declared disaster, an act of terrorism, or other eligible reason. The IRS will issue a notice if such an act occurs and the notice will provide information about the types of time-sensitive actions that are being extended and the length of the extension (sometimes a specific date will be given and other times a number of days will be given).

If you purchase the new property for less than the amount of the original property's fair market value, you will have to pay taxes on the amount above the value of the new property. In your situation, you would pay taxes on the amount over $260,000.

[Anonymous_]

I concur with @DashonnonH, but a 1031 exchange would need to have been arranged previously.

If any proceeds were received from the sale of the vacation home by @karlniemi (which is virtually inevitable unless an intermediary is used), then a 1031 exchange would not be a possibility.