Capital gains question vacation property

Capital gains question vacation property


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Capital gains question vacation property
Old 02-08-2017, 10:33 AM
vinnie vinnie is offline
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Join Date: Apr 2007
Posts: 136
Default Capital gains question vacation property

Hypothetical...using round numbers
Lets say I bought a home in NY 20 years ago for 1 million as my primary residence. Then 10 years later I buy a home in The Villages and make Florida my primary residence.

Lets assume this 1 million home is now worth 2.5 million with a net gain including capital improvements of 1.5 million.

What are my options if I wish to sell NY residence and pay no capital gains taxes?
1. I can become a NY resident for 2 years and then get $500k exclusion thus reducing my capital gains tax from 1.5 million to 1 million
2. I can rent this vacation property for 2 years to treat it as investment property since it is not my primary residence. Then if I sell it, I can do a 1031 exchange as long as I follow the rules regarding identifying and closing on new property.
Here some the tricky part...
Can I rent this property in NY Oct Nov Dec of 2017 and also Jan Feb Mar of 2018 and then close on the property April 1st in order to qualify.
Is there any amount of money that I need to collect for rent or time I need to rent to fully qualify?

Old 02-08-2017, 11:53 AM
retiredguy123 retiredguy123 is offline
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Join Date: Feb 2016
Posts: 1,375

I could be wrong, but I don't think option 2 is legal. If you convert the house to a rental property, you need to re-establish a cost basis based on the market value at the time you convert it. So, the cost basis would be 2.5 million, not 1 million, for purposes of the 1031 exchange. Then, you would probably owe taxes on the 1.5 million gain when you did the exchange and disposed of the property. Option 1 may work, but I'm not sure.
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Old 02-08-2017, 12:41 PM
Daddymac Daddymac is offline
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Join Date: Jul 2016
Location: Long Island NY
Posts: 255

I owe rental properties. I also am in New York. I own rental properties in New York and in Florida. You are getting into a very tricky territory. See an account. You may be able to combine both houses as rental investments. Sell both houses, I buy one in the villages. ""Again"". Find a good account.
Old 02-08-2017, 01:43 PM
Bloom&Company Bloom&Company is offline
Join Date: Dec 2016
Location: Haciendas of Mission Hills
Posts: 53

I am not sure if you are the same fellow who called me the other day, but please feel free to give me a call if I can help. Bob Bloom CPA 425 941 5224

Bob Bloom, CPA provides a boutique tax practice in The Villages and surrounding areas. After having a 35 plus year tax practice of my own, I sold my practice in Seattle and moved to The Villages where I am a licensed CPA. I love doing taxes and am dedicated to my clients. My rates are reasonable, I am professional and prompt. I come to your home to meet with you and discuss your tax needs, no obligation. If you hire me, I do your return and bring it back to you. I deal with complex and out of state tax returns and can represent you to the IRS if needed. Call me at 425 941 5224 seven days a week or email I have references.
1031 exchanges
Old 02-08-2017, 07:22 PM
valuemkt valuemkt is offline
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Join Date: Oct 2007
Location: Currently Atlanta GA - Formerly Endicott and Syracuse NY
Posts: 138
Default 1031 exchanges

it's very difficult to put toothpaste back in the tube. I recommend you first do a google search on vacation homes, second homes and 1031 exchanges.

I'm sure you realize the following:
1. a rental property / vacation home cannot be occupied by the owner for more than 14 days per year, or ten per cent of the rented days, whichever is fewer. No one would sit on a 2.5 million property without using it for more than 14 days per year
2. Even if you do eventually qualify for a 1031, and the rules are incredibly restrictive, you cannot take a penny out of the proceeds of the sale .. 100% of the 2.5M proceeds need to go towards the purchase of like kind property... and you would have to show that / those property (ies) would have to be income producing.

Since you might not be an experienced real estate investor, you might want to explore TICs (tenant in common) properties. Im not a fan, but it could fit a need.

Over a CPA I would first, contact Starker Services, the leading company specializing in 1031 exchanges. They know the rules inside and out. Second, a true wealth advisor might be employed to see how that 2.5M fits into your overall wealth and inheritance strategy.
Old 02-09-2017, 08:22 AM
vinnie vinnie is offline
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Join Date: Apr 2007
Posts: 136

no cost basis issue at all
I have empty lot I bought for 200k. Worth 1 million.
I know i could buy a building for 1 milluon or more nad pay no captial gains. it is deferred
Old 02-10-2017, 09:13 PM
vinnie vinnie is offline
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Join Date: Apr 2007
Posts: 136

Found out safe harbor is 2 years
Basically showing rental of a 2 year period. However a legal expert told me a 1 year lease and then a sale afterward would suffice
Old 02-10-2017, 09:21 PM
vinnie vinnie is offline
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Join Date: Apr 2007
Posts: 136

1. When renting a condo whereby you live in it for 14 days max would work
You walk out and turn out the lights
When you own 2 acres of land, someone has to cut the lawn. When it is an older home, someone has to maintain, do I think there is sonedifferences
2. I would use it for investment property that would be income producing.
While I am not as savvy as I would like to be, I have a cousin who is a mortgage broker who has handled many of these for investment purposes...nany of them Family Dollar stores. 15 year leases guaranteed by corporate. I also have a college buddy who was CFO of Cushman and Wakefield, a large commercial investment company.
Would use both for advice.
Starker Services is a good thought. I will talk to them
I have the # 1 financial services company Creative Planning.
I use Ameritrade since CEO is a high school buddy.
So while it is a winding road, I have a game plan to put into play...assuming I put all my ducks in a row
Thanks for your thoughts
Old 02-11-2017, 04:58 PM
vinnie vinnie is offline
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Join Date: Apr 2007
Posts: 136

Accountant is one issue, good real estate attorney is the keyhole
While 1031s have certain rules, I am confident I can do this especially if I get blessing I'm accountant and more importantly real estate attorney
The empty lot is a no brained. The house needs to be handled properly
By the way, I already gave owned a home in The Villages for 12 years
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