Tax Implications/Options for Sale of Rental Property?

My wife and I are considering selling a beach house we have owned for 4 years. In that time it has appreciated a fair amount so we'd like to minimize the tax implications to the extent possible. As I understand it, if we simply sell it and don't buy another property, we will have to pay taxes on the gains. At this time I don't believe we will purchase another property but if we did, it probably not be a rental property. What I'd really like to do is apply the proceeds to our primary residence as it is an older home which needs a fair amout of renovation as well as an addition. Is there any way to do this? We currently account for the beach house as a rental property and not a second home (schedule E). If it were a second home, would we be able to do what I'd like to do? How long does a rental home have to be off the market as a rental before it can be considered a second home? Thanks for any advice.

Mike

-- Mike Walsh - mike_walsh at mindspring.com

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Reply to
Mike Walsh
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You seem to be ignoring the fact that second homes are subject to capital gains tax just like rental properties Rgs,

Mark

Reply to
Mark X. Rigotti, CPA

The rule you are thinking about went out 10 years ago. The present rule is: If you own and live in a property as your main residence for 2 of the previous 5 years, you may sell the property for a profit of $500K (married filing jointly) and not pay any tax on the gain. The rule for singles is $250K. The only way for you to not pay any tax on the profit is to move into the house for 2 years and then sell it. After you sell the property you may do (after taxes are paid if needed) whatever you want with the proceeds. Missy Doyle

Reply to
Missy

To achieve your stated objectives, I can see one way. Move into the beach home and make it your primary residence for two years, perhaps while starting the remodel on the other property. Then sell the beach home and take the half mil exclusion (and pay off construction loans?). Making the beach home your second home doesn't do anything for you. BC

Reply to
sftydvr

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