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Sale of a Second Home with No Rental Use (or no more than 14 days rental)
Te Bridgers own a vacation home that they purchased for $275,000. Tey have never rented it to others.
Tey sell it for $335,000. In the year of sale they also have earned income from other sources of $225,000.
Te tax applies as follows:
Gain on Sale of Vacation Home
($335,000 – $275,000)
Income from Other Sources
($60,000 + $225,000)
Excess of AGI over $250,000
($285,000 – $250,000)
Capital Gain
Lesser Amount
(AGI excess)
Tax Due
($35,000 x 0.038)
If the Bridgers rent the home for 14 or fewer days in the course of a year, the rental
income is non-taxable and the results in the year of sale will be the same as shown
above. If the rental period exceeds 14 days in any year, then the rental income
(less expenses) will be taxable and AGI would include not only the capital gain,
but also some amount that is depreciation recapture. (See next example.)
If the second residence is SOLELY a rental property, it is treated as an investment
property. See examples 7 and 8.
Example 6