When it comes to taxes, owning a second home can be a bit complicated. One of the key things to be aware of is the capital gains tax that may be owed when you sell the property.
First, it's important to understand what a capital gain is. A capital gain is the profit that you make from the sale of a capital asset, such as a home. The capital gain is calculated by subtracting the original cost of the asset (also known as the "basis") from the sale price. If the sale price is higher than the basis, you have a capital gain, and if the sale price is lower, you have a capital loss.
When it comes to a second home, the capital gains tax rules are similar to those for a primary residence, but with a few key differences.
One of the main differences is the amount of time that you must have owned and lived in the property in order to qualify for the capital gains exclusion. For a primary residence, you must have owned and lived in the property for at least two out of the five years leading up to the sale in order to qualify for the exclusion. But for a second home, you are not eligible for the exclusion.
Another important difference is the amount of the exclusion itself. For a primary residence, you can exclude up to $250,000 of capital gains from tax if you are single and up to $500,000 if you are married and file jointly. However, for a second home, the exclusion does not apply, meaning that you will owe capital gains tax on the entire gain.