How do I not pay capital gains taxes on the profit I made from selling my second / vacation home?

Question

I am using the profit to build a garage on my primary residence, can I use this to offset the capital gains tax on the 2 nd home I sold? I never lived in the 2nd home, it was a lake house. Also I had to give 1/2 of the profit to my father because he helped pay for the property, but the deed was in my name only.

Answer 1

Nothing you can do but pay the taxes. Unless you qualify for the primary residence 2 of last 5 year exemption, the only way to avoid taxes is to do a 1031 exchange and defer those taxes while buying a new property.

But make sure you make your dad pay his fair share of those taxes too. If he got half the profits, he owes half the tax.

Answer 2

Oh, your father got a tax-free gain, but you did not. At least, figure your profit after you pay the taxes, and dad should get only 1/2 of that.

You have to pay capital gains tax on the profit. Get a tax preparer to figure the gain so you pay as little as possible.

Using the proceeds to improve your primary home will not reduce your taxes.

Answer 3

The best way is to do tax planning before you sell something and not later. If you held any stocks at a loss you could have sold them by 12/31 to help offset the gains. Too late now.

Answer 4

You cannot do a 1031 exchange on a 2nd home. The property must be non-owner occupied (rental) and she must use the capital gain to purchase another property. That's why it is called an exchange.
If you are of retirement age you are allowed a one time exemption from capital gains taxes. I believe the age limit is 55. Now this exemption may or may not still be available but it is worth asking your tax preparer or accountant about

Answer 5

Sure, it's called Tax Evasion. It leads to a very structured life-style in Federal Prison.