What is our tax burden when selling a second home because of a job loss?

[ShaunaMac]

We built a second home and closed on our purchase in July of 2021. My husband just lost his job and we need to sell the home. 

Does anyone know if there is a hardship option when it comes to capital gains on a second home, if the sale is due to a job loss?

Also, we know we can deduct realtor commissions and any improvements we made to the property from the profits, but can we also deduct closing costs from the purchase of the home when calculating capital gains? 

Finally, if we roll over the profits into our primary home (paying down the mortgage) does that have an impact on our capital gains tax burden? 

Thank you for any advice!

[Mike9241]

Does anyone know if there is a hardship option when it comes to capital gains on a second home, if the sale is due to a job loss?

there is no partial exclusion when you don't own and live in a home that is not your primary residence. 

Also, we know we can deduct realtor commissions and any improvements we made to the property from the profits, but can we also deduct closing costs from the purchase of the home when calculating capital gains? yes - you can also deduct other closing costs that you incur when you sell for example transfer tax, inspection fee, warranty fee

Finally, if we roll over the profits into our primary home (paying down the mortgage) does that have an impact on our capital gains tax burden? no

you can use the cash from the sale of your second home for anything you want, but it will not reduce the taxable gain. 

[Carl]

We built a second home and closed on our purchase in July of 2021. My husband just lost his job and we need to sell the home. Does anyone know if there is a hardship option when it comes to capital gains on a second home, if the sale is due to a job loss?

Unfortunately, I don't believe that job loss is an "unforseen circumstance" that qualifies one for any type of tax break; especially since the property was never your primary residence.

can we also deduct closing costs from the purchase of the home when calculating capital gains?

Depends on if the intent of the purchase was to make it your primary home or some type of investment property. There are others in this forum that can extrapolate on that more so than I can.

Finally, if we roll over the profits into our primary home (paying down the mortgage) does that have an impact on our capital gains tax burden?

What you do with the gain doesn't matter. That "rollover" option you're thinking about expired over 10 years ago. So if you sell at a gain, the gains are, for the most part, taxable income. While investing the money into property improvements into your current primary residence will increase the cost basis of that property, you will still pay taxes on the gain in the tax year you receive that gain.

Just a "thought in passing" here, but it would seem to me that if you're selling the property because you need the cash due to a job loss, the last thing you'd be doing with any gain would be investing it, as you most likely need it for survival until new employment is obtained.

Have you considered if renting out the property would help replace some of the lost income? Might be something to look at if you haven't already.

If you sell this property within one year of ownership, then gains are considered short term and you pay more in taxes on short term gains.

[Opus 17]

There is no exception to the capital gains tax for a second home, regardless of why you sell.

Certain closing costs can be included in the cost basis, these are listed beginning on page 8 of IRS publication 523.

There is no provision to defer tax on capital gains by rolling the gains over into any other property, unless this is commercial property and you do an appropriate 1031 exchange, which must be arranged in advance, and you must exchange like commercial property for like.

[ShaunaMac]

Thank you for your responses! We appreciate the insight!