Tax from sale of vacation home

[tbelfiori]

I am thinking about selling my lake cabin (MN) and would probably gain at least $60,000-70,000 from the adjusted basis of this property I have held for 25 years. I've looked at Pub. #544 but it isn't very clear. What it seems to say is that this would be a long-term capital gain and I would be taxed at an 8% rate (Used to be 10%) since our regular income is low (AGI of about 15,000-20,000). Am I missing something? Can I avoid taxes on the sale in any way such as buying another second home in the near future?

 

[Taxguy]

>>Am I missing something? <<

Yes. There is no such thing as an 8% capital gains rate.
No,...you can not avoid tax by buying a 2nd vaction house.

 

[tbelfiori]

Page 33, IRS PUB 544: "Beginning in 2001, the 10% capital gain rate will be lowered to 8% for qualified 5 year gain". Since I've owned the vacation home for 25 years and my AGI is so low, is this the rate I will have to pay. If not, what would the rate be.

 

[Taxguy]

>>Since I've owned the vacation home for 25 years and my AGI is so low, is this the rate I will have to pay. If not, what would the rate be.<<

You have to do the calculation.
The rate is a function of both taxable income AND the capital gains.

 

[ELNbluemax2]

As I understand the law, if you have lived
a total of two years in the last five years
in your vacation home, there would be no
tax at all on your profit of 60 or 70K.
How about it, Taxguy?

 

[Taxguy]

>>in your vacation home, there would be no
tax at all on your profit of 60 or 70K.
How about it, Taxguy?<<

By definition, a "vacation home" is *not* a "primary residence". What is your point ....?

Only a primary residence qualifies for relief.

 

[ELNbluemax2]

Maybe, you haven't read the latest IRS rules
on vacation homes. Unless, our newspaper is
publishing wrong info on that.
Every 24 months, you can sell a home, primary or
vacation home, and as long as you have lived in
the home you are selling a total of 24 months in a
five year period, you don't pay tax on profit up
to 250,000 (or 500,000 per couple). Example..if you
live in Fla.in the winter for 5 or 6 months, you can
accumulate the necessary 24 mos. in 5 years.
It doesn't have to be the "Primary residence"
I hope you check this out...might help a lot of people.