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Sale of Vacation / Second Home

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Lesson Topics

  • Personal residence defined
  • NOT Principal residence (main home) defined
  • Does not qualify for Principal residence exclusion
  • Bogart Home Sale worksheet exercise
  • TaxSlayer input/demo

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Pub 523

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Personal Residence Defined

  • Lived in by taxpayer or family member (15 days during a year)
  • Rented or used in a business – out of scope
    • Exception: 14-day rental (or less) allowed during year
  • Home is non-investment asset
    • Capital asset for gains
      • Gain on sale = capital gain
      • Exclusion if satisfies main home tests
    • Personal asset for losses
      • Loss on sale = nondeductible personal loss

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Scope

  • The sale of real estate is OUT OF SCOPE if not used as personal residence.
  • If received via inheritance (or gift) it is OOS unless used as personal residence by TP or Spouse, and they must provide the property basis.
  • Loss on sale is not allowed

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NTTC 4012 D-51

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Principal Residence Defined

  • Vacation or 2nd Home is not the Principal residence (main home)
    • Where taxpayer lives most of the time
    • Can be house, houseboat, mobile home, condo or co-op
    • Must have cooking, sleeping and bathroom facilities
  • More than one home?
    • Home taxpayer lives in most of the time = main home
  • Exclusion Does NOT apply (but still in Scope)

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The Interview Sale of Home

  • Intake and Interview form (page 3):

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  • Gain on sale of Vacation or 2nd home will need to be reported (even if NO 1099-S were issued).
  • Capital Gain is reported on Schedule D

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Vacation Home Sale Exercise

  • Alternative to Tax Slayer Worksheet
    • Bogart tool for home sale

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  • Sold 12/10/2025 for $155,000 and $9,900 sales expenses
  • Purchased on 8/31/1999
  • Purchase Price $58950 with $1,570 closing expenses
  • Improvements listed on next slide

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Bogart Home Sale

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Adjustment to Basis - Improvements

  • 09/25/1999 New carpet & vinyl $2,100
  • 02/2005 Upgrade Patio (fence & door) $1,743.37
  • 9/2008 Kitchen remodel $4,978.44
  • 11/23/2009 New furnace & A/C $6,900
  • 01/11/2000 Plumbing Repair $164.84
  • 07/01/2020 New Water Heater $1950
  • 10/2021 New LVP flooring $6,839.14
  • 05/13/2022 Repipe (upgrade to PEX) $5,200
  • 09/2022 Master bath Remodel $10,726.24
  • 01/04/2023 Replace Water heater $2,275

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Exercise & Demo

EXERCISE

Complete Bogart Home Sale Worksheet with TP provided information (prior 2 slides)

Compare & discuss any questions.

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Open Tax Slayer and add Home Sale Capital Gain.

DEMO

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Bogart Home Sale Worksheet Input

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Bogart Home Sale Worksheet Input

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Bogart Home Sale Worksheet �Input - Improvements

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Bogart Home Sale Worksheet Output

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1099-B inputs

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Capital Gain/Loss Summary

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Determining Cost Basis (taxpayer’s responsibility)

  • Purchase price of property
    • Add fees and expenses paid at purchase
      • Legal fees, recording fees, transfer fees, title insurance, etc.
      • Do not include financing fees, homeowner dues, property taxes, rent paid for early occupancy, etc.
    • Add improvements that increase value of home
  • Refer to Pub 523 Selling your Home for other adjustments to basis

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Pub 523

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Determining Cost Basis

  • Includes repairs done as part of larger improvement, e.g., painting exterior after adding a room
  • Review examples in NTTC Pub 4012 D46-49

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NTTC Pub 4012

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Determining Cost Basis

  • Not included in cost basis
    • Repairs
      • Routine painting
      • Fixing roof leaks
    • Improvement later replaced
      • If you re-roof twice, only last roof can be included

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