Selling a house

[Jkuhnlein]

I owned a vacation home in Florida for 9 years. My wife and I went there in the winters. This past year I sold it for a nice profit. 
My wife owns a home in Oregon where we live the rest of the year. 
We file a joint return. 
How do we deal with the profits from the sale ?

[NateTheGrEAt]

Hi @Jkuhnlein  - thanks for chatting with us today. Congratulations on making a nice profit on the sale of your second home.

There is no capital gain exclusion for the sale of a vacation home unless it qualifies as your principal residence. To meet this requirement, at a minimum you would've had to live in the home for a combined total of 24 months out of the five years immediately prior to the sale date. I don't know how long you wintered in the house, so I don't know if you meet that requirement or not. If you didn't live there for at least 24 months, then you don't qualify for the Section 121 exclusion. 

Even if you did live there at least 24 months, the home still has to be your principal residence, and the IRS gives several factors that go into that assessment:

In addition to the taxpayer's use of the property, relevant factors in determining a taxpayer's principal residence, include, but are not limited to -

(i) The taxpayer's place of employment;

(ii) The principal place of abode of the taxpayer's family members;

(iii) The address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, and voter registration card;

(iv) The taxpayer's mailing address for bills and correspondence;

(v) The location of the taxpayer's banks; and

(vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.

If the home is your principal residence and you meet the 24-month rule, you could qualify to exclude up to $500,000 of capital gain if you're Married Filing Jointly. Any capital gain in excess of the exclusion amount would be taxed at the applicable capital gain rate (0%, 15% or 20% depending on the total amount of your income, including the taxable portion of the capital gain). 

If the home wasn't your principal residence or you don't meet the 24-month rule, then you would not have an exclusion. The entire capital gain would be taxed at your capital gain rate as described above.

I hope this information is helpful!