The IRS allows you to exclude all or some of the gain on the sale of your home if you meet the requirements. However, the rules for the capital gains tax exclusion on a second home sale are tricky; when it comes to capital gains taxes, the irs draws a hard line between homes used as principal residences and investment properties. You can usually sell your primary home without worrying about taxes, but different rules apply to vacation second home. If you sell your second home, your capital gains is the portion of the proceeds that exceeds what you paid for the property, plus the cost of any improvements you made over the years. You can deduct many of the closing costs associated with the sale from your proceedsaslongas you itemize deductions on Sch A of 1040. If you treated your second home as an investment property, you could potentially escape capital gains tax through a 1031 exchange, but this means reinvesting in a relatively short period of time. A 1031 exchange involves placing your profits from the sale with a third party, such as a bank or a title company. You must then select a new property to invest in within 15 days of the sale of the first property and close on its purchase within six months |