Yes, selling a vacation home indeed counts as income, and just like selling stocks or any other assets, it will make you subject to taxes. If you’re a property owner who has decided to sell your second home, there are a few things you should keep in mind when it comes to taxes. Below, we’ll break down the details of how the property sale will affect your tax status.
Capital gains tax: If you’ve owned the property for over a year, you’ll be subject to the long-term capital gains tax rate, which can range from 0% to 20%, depending on your income bracket. If you’re in the highest bracket, you’ll have to pay 20% of your capital gains taxes.
Depreciation recapture: If you’ve ever rented out your vacation home, you’ll need to pay depreciation recapture tax on the depreciation you’ve claimed on your property for tax purposes. Depreciation recapture taxes are due at a higher rate of 25%, regardless of your income bracket.
Deductions: If you’ve made any home improvements, you can factor those costs into your capital gains calculation. Additionally, you can deduct any expenses associated with selling your vacation home, such as real estate agent fees and closing costs.
Overall, while selling a vacation home can be a profitable move, you’ll need to be mindful of the tax implications of the sale. Understanding the details of capital gains tax rates, depreciation recapture, and deductions can help you plan accordingly and make the most out of your sale.