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Ask Michael Lykken, Esq Your Own Question
Michael Lykken, Esq
Michael Lykken, Esq,
Category: Real Estate Law
Satisfied Customers: 98
Experience:  Partner at Soares & Lykken, Attorneys at Law
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Selling a secondary home (vacation home), have two other

Customer Question

Selling a secondary home (vacation home), have two other houses, 1 is mortgage free, other has a mortgage balance.
I am 72, my wife is 63, never sold a house before, we have a $400,000 balance on the home for sale, equity line of $250,000 that was used to remodel. Sale price is $1,000,075 after fees and commission will be about $1,000,020 we will receive. Appraised value was $1,000,050
What are applicable taxes to be considered, is there 1 time exclusion, or age thing, we want to pay off the equity line and a third property that we have.
Paul *****, ******************, *********************** Cell:***-***-****
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Michael Lykken, Esq replied 1 year ago.

Hello, thank you for using this service. I am a licensed California attorney,and I would be happy to help you with this question. Please understand that i can only provide you with general legal advice in this forum. Also, I have a law practice so that if I cannot respond immediately back to you it is because I am either at court or in a meeting, in which case I will respond at night.

Now on to your question. Any tax paid is based on the appreciation you have in the property (the "gain"), which is the difference between the price you paid for the house (your "basis") and the price you sell it at. These gains are taxed at the capital gains tax rate. There is an exclusion of $500,000 in gain for your primary residence, but you have to have lived there for 2 of the past 5 years. So as a vacation home, if you were to sell today you would have pay capital gains tax on any gain you make on the sale of the house. You could move in there and live there for 2 years as an alternative, then sell in 2 years once you have met the requirements for the exclusion. Or, you could rent out the vacation home to make it an investment property. Then you could do a 1031 tax deferred exchange and buy a new property (but you couldn't pay off the mortgage or equity line on your primary home). That would allow you to avoid taxation since you are keeping the new property as an investment property. Those two options are all you really have available to you if you want to avoid paying capital gains tax on the sale. Please let me know if you need any further clarification. If not, I hope you have found my service helpful. I would therefore appreciate it if you would rate my service so I receive credit for this answer. Thank you!

Expert:  Michael Lykken, Esq replied 1 year ago.

Hello, I hope you found my service helpful. If you need further clarification, please let me know. If not, I only receive credit for helping you if you rate my service. I therefore would appreciate it if you would do so. Thank you!

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