How does capital gains tax work when you own a second property and is there any ways of avoiding the tax?

Answer 1

Tax on the sale of a second residence can't be avoided. That said if you make it your primary residence for two out of fie years any gain on sale up to $250,000 would not be taxed. The two years does not have to be consecutive. It could be year one and five or it could be for six months four times over that five year period.
In order to be able to avoid the tax without making it you primary residence you would have to convert it to a rental property. Once it is a rental property you would then qualify for a section 1031 exchange into another property. Section 1031 only applies to property used in a trade or business or held for investment.
Good Luck!

Answer 2

Capital gains is for investment property (or a 2ND piece like you said) and works like this.

If you own the property longer than one year you pay 'long term capital gains' at about 15% of the gains only (if you bought the 2nd piece for $100k and now its worth $140k you owe 15% of the 40k gain).

If you own the property less than one year, you pay 'short term capital gains' at you current tax rate or 28-33%, but again only on the difference of what you paid and what you sold it for.

There is no way to avoid that tax, but you can differ that tax (forever is some cases) through a like property exchange (I did one this year on a rental house). This is not as complicated as I once thought.

Email me if you want any specific info on how I did an exchange (you have to decide to do the exchange before you sell the property).

The link is to the IRS's website about 'like-kind exchanges'.