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What tax regulations apply to selling a second home?

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Quick Answer

Tax rules relating to the sale of a second home have to do with factors such as the duration of ownership and proportion of occupancy. Proceeds from the sale of a second home are considered a capital gain under U.S. tax law; if the seller owned the second home for less than a year, the sale is taxed as a short-term capital gain, and if the seller owned the second home for more than a year, the sale is taxed as a long-term capital gain, reports H&R Block. Losses on the sale of a second home are not tax deductible.

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Full Answer

Because second homes are not usually a primary residence, owners may face additional taxes when they sell their second homes. This is because there is a tax rule that applies to second homes in which the owner has not consistently lived for 2 out of the 5 years previous to the date of sale. There is a way around this rule if owners of the second home can make this house their primary residence for 2 years before putting it on the market, according to Investopedia. If the homeowners manage to make the second home their primary residence for those 2 years, they may be able to exclude up to $250,000, or $500,000 for married couples who both lived in the home, from the capital gains tax imposed on the sale.

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