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Originally Posted by JCX5
I have a second home at the NJ Shore. I am contemplating selling it. It has appreciated significantly. Not sure if I would buy another home. How is the appreciation/profit taxed? How do I avoid being hit very hard on that profit?
TIA
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1031 exchanges apply to property held for investment or property used in a trade or business.
If it is investment property, then you can do a 1031 exchange and defer all gain. However there are a bunch of rules you must follow and some pitfalls which may result in taking a portion of the gain now. If you want money out you may want to think about taking money before the exchange.
Otherwise, it becomes principal residence or second home - there, other rules apply (250k exclusion, 500 if married.) Taxed at capital gain rates.
Discuss with your accountant - there are many ways to structure this to your benefit and your goals.
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