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Be Careful What You Call Second Homes
In many areas of taxation, there are big differences in the financial consequences strictly based on how things are described, such as with this recent email I received.
My reply:Hi! I was reading your tax page. Can you answer a question? If you sell a secondary residence and buy a different secondary residence, is that done under a 1031? How do you prove a property is a secondary residence? I find a lot of info about rental for rental or sale of primary residences but I can't find anything about sale of a secondary or part-time residence.
Thanks,
Tax treatment for the sale all depends on what call the residence.
If you call it a "personal use" property, there is no way to avoid taxes on any gain on its sale. It does not qualify for a 1031 exchange. The best you can do is delay some of the taxes by carrying back as much of the sale price and reporting the gain on the installment method.
If you call the residence "investment" property, which you may have visited occasionally to maintain, it is eligible for a 1031 exchange and can be replaced with any investment, farm, rental or business real estate in the country, as described at www.tfec.com.
You would be well advised to consult with your personal tax advisor to see how much tax you are looking at and whether the property can be considered as an investment.
Normally, if there is a large gain from the sale of an asset, that proves it was a smart investment.
Good luck.
Kerry Kerstetter
Labels: 1031
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/03/2004 09:54:00 PM Send this post:
