If I sell my secondary home, How much taxes (percentage) on the gains do I have to pay in NJ?

Question

I heard in some states you do not have to pay taxes on the first $-250-500k of gains if you sell your primary home for more than what you purchased it. I was wondering if that is still the case if it is your secondary home. If not, would it be more advantageous for me (in a tax perspective) to sell my primary home first, then my secondary home?

Answer 1

Second homes do not qualify for the Federal exclusion and I can't imagine any state treating it otherwise. You'll have to inquire with the NJ tax folks.

Assuming that you owned it for more than 1 year, the Federal long-term capital gains rate is 15% of the net gain on the sale.

You could avoid up to $250,000 (Single) or $500,000 (Married Filing Jointly) on each of them this way:

1. Sell your principal residence once you have lived in it for 2 of the 5 years prior to the sale. Take the exclusion.

2. Move into your current second home, making it your principal residence. Remain there for at least 2 years. You may now claim the exclusion again as long as you haven't claimed it within the 2 previous years.

Answer 2

You have to have lived in the home for 2 of the past 5 years to qualify for the capital gains tax exemption of $250/500K.

Otherwise, you'll pay long-term CG tax of 15% on any gains.

If you think you might be able to fit into that 2 of 5 year bracket, consult a tax advisor to make sure it would still count if it wasn't really your primary residence. That could be arguable, like if you spend 4 months per year in a sunny climate, that could be your primary residence for that period.

Answer 3

The $250k and $500k exclusions apply only to your primary residence. You have to have lived in the home for 2 years out of the last 5 for it to qualify as a residence.

Another question you should ask yourself is whether you've rented out the home while you owned it? If so, you may have some other rules that kick in for passive income and rental property.