question for the accountants out there

[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

[E61Silver]

If you had rented it you might be able to consider it a investment property.

If it is a investment property you can buy a new property (1031 exchange) and not have to pay capital gains.

I am not a acountant, but trying to help.

[JCX5]

Originally Posted by x54.4blue

If you had rented it you might be able to consider it a investment property.

If it is a investment property you can buy a new property (1031 exchange) and not have to pay capital gains.

I am not a acountant, but trying to help.

Thanks - yes, that is the case. It has been rented during the summer season.

[Rob_]

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?

Im no accountant but I just went through this a year ago. My first suggestion is if you can afford to keep it rented then DONT SELL IT!

I had a rental property in Miami but live in GA. Playing long distance landlord got to be a little much after 10 years so the the CEO and I decided to sell.

Since it is an investment property, you will have to pay capital gains. From what I remember, 1031 exchange only applies if it is your primary residence.
I had to pay federal taxes and state taxes. FL does not have a state tax but GA has a state tax so they got some of my money on that profit. Feeling like Im about to go postal right now ..................OK, ive taken a few deep breathes...Ok Im feeling a little better. The phrase "it's cheaper to keep her" fits the bill. I apologize if any of my info is inaccurate but that whole experience is something I try not to remember.

Rob_

[JCX5]

that I can try to make it my primary residence. Not sure how (bills go to that postal address? Driver's license to that address?).

How long would it have to be my primary in order not to pay capital gains?

[AutoXer]

1031 exchange rules only apply to investment properties, not principal residences.

If you want to convert it to your principal residence, then you need to be able to demonstrate that you live there for the last 2 out of 5 years. It does not need to be continuous, but in the event of an IRS audit, they will look for utility bills, driver licenses, and voter registration at that address.

If you can qualify, they you can exclude from the gain $250k if you are single or $500k if you are married. If you treat the sale as an investment property, the gain will be taxed at capital gains rate with a max of 15% for Federal and whatever the laws are for your state.

I am not an accountant either, but in real estate and familiar with the tax laws in this area. For the best advice, please consult your CPA.

[pseto]

Originally Posted by JCX5

that I can try to make it my primary residence. Not sure how (bills go to that postal address? Driver's license to that address?).

How long would it have to be my primary in order not to pay capital gains?

From what I remember, you have to live in the home for 2 years and you can claim as primary residence. Capital gains up to $500k aren't taxed.

[Phester]

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

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.

[E61Silver]

I think I said that if you rent it you may be able to treat it as an investment and do a 1031.

It seems like that what Autoxer & Phester is saying as well.

I am also in real estate, guess acountants don't buy X5.

[Phester]

Originally Posted by x54.4blue

guess acountants don't buy X5.

I am and I did