Will I Pay Capital Gains on the Sale of My Second Home?
Selling your second home? When you sell a vacation home, rental, fix-and-flip, or any second property that is not your primary residence, you will typically be responsible for paying capital gains taxes on any profits you make, at a rate of up to 20%, depending on your tax bracket. But you may be able to mitigate those taxes.
In this post, we discuss under what conditions you can minimize your capital gains tax when selling your second home and maximize your profits as a seller.
To provide you with the most up-to-date information, we spoke with real estate attorney Koert Brown of Rammelkamp Bradney in Illinois and AJ Pettersen, a top Minneapolis real estate agent who works with 74% more single-family homes than the average agent in his market.
Editor’s note: This post is meant for educational purposes, not tax advice. If you need assistance navigating capital gains on a home sale, HomeLight encourages you to contact your own advisor.
Selling a second home vs. selling a primary residence
When selling a primary home, the seller generally doesn’t have to worry about paying taxes on profits — up to a certain point. The IRS allows a single-filer homeowner to forgo paying taxes on up to $250,000 gained from the sale, and a married couple can exclude up to $500,000 in profit.
Brown says a property is considered a primary residence if the owners occupy it for the greater part of a year (more than six months) for at least two of the past five years, and can prove it. For audit purposes, proof is determined by where the owner is employed, banks, receives mail, and attends community places like recreational clubs.
When selling a second home, you typically have to pay tax on capital gains at a rate of up to 20% in 2024, depending on your tax bracket.
A property is considered your second home if it’s a vacation home or an investment property that you rent out.
How much you’ll pay in capital gains tax depends on several factors:
How long you’ve owned the second home
The cost of owning the property, including the cost of capital improvements and any fees
Your income tax bracket
Your marital status
Whether you rent out your second home
Whether you replace that property with a like-exchange
Whether you claim an investment loss in the same tax year
What are capital gains taxes?
Capital gains taxes are the taxes you pay when you sell an appreciating asset and make a profit (capital gain). According to the IRS, there are two main categories of capital gains tax on the sale of a non-primary residence:
Short-term capital gains tax. This is a tax on any profits from the sale of a property that you’ve owned for one year or less. For short-term properties, you’ll typically pay the same tax rate as you would for your ordinary income.
Long-term capital gains tax. If you’ve owned your second home for more than a year, you’ll typically pay a long-term capital gains tax between 0% and 20%, depending on your earnings. According to the IRS, property owners will pay a 15% tax unless they exceed the higher income level.
What’s the current long-term capital gains tax rate?
Long-term capital gains tax rates for 2023
Filing status
0% rate
15% rate
20% rate
Single
Up to $44,625
$44,626–$492,300
Over $492,300
Married filing jointly
Up to $89,250
$89,251–$553,850
Over $553,850
Married filing separately
Up to $44,625
$44,626–$276,900
Over $276,900
Head of household
Up to $59,750
$59,751–$523,050
Over $523,050
Source: Internal Revenue Service (IRS.gov)
Long-term capital gains tax rates for 2024
Filing status
0% rate
15% rate
20% rate
Single
Up to $47,025
$47,026–$518,900
Over $518,900
Married filing jointly
Up to $94,050
$94,051–$583,750
Over $583,750
Married filing separately
Up to $47,025
$47,026–$291,850
Over $291,850
Head of household
Up to $63,000
$63,001–$551,350
Over $551,350
Source: Internal Revenue Service (IRS.gov)
