Real Estate

Are you selling a beach house?

TLDR: Understand how to leverage principal, investment and vacation property for max tax savings & enjoyment.

Are you selling a beach house?


I've been browsing for a beach house on Redfin and Zillow for months. Part of me hoped that the market would cool down and we'd be able to acquire something near the water. I currently live 2 hours away from the Atlantic Ocean so there's a strong pull for this. My vision for the property would be three-fold:

1) It would serve as a vacation spot for my friends and family. Having a go to location that accommodates everyone simplifies fellowship travel

2) The property would be a client meeting place and corporate retreat center. So, Healthy Coin is a virtual firm (meaning we have no offices) but what I'd like to do is open up calendar blocks for clients to book the beach house at no cost. We'd easily find a business purpose  by wrapping a weekend like this:


Thursday afternoon - client arrives at beach house.

Friday - business strategy meeting, lunch, tax planning meeting...

Saturday & Sunday - client stays for the weekend enjoying the sand


(3) The final purpose for the property would be as a short-term rental. When not being booked by myself, a client or employee, I'd throw it onto a site like VRBO or Airbnb to make some passive income during the vacant periods. If we can find a location, I'll let you know how this goes.


Let's talk about how the selling rules work.


The tax-code-defined vacation home rules come into play when you have both rental and personal use of a home.


If you have no combined rental and personal use of the home, the rules are simple as pie. The property is one of the following:


•             Principal residence

•             Second home

•             Rental property


But when you have both rental and personal use of the home, the tax scenario gets more complicated because you have entered the tax code’s vacation home section.


If it’s a principal residence, then the $250,000/$500,000 home sale exclusion is available when you sell.


If it’s simply a second home, you can’t use the exclusion and you pay taxes at capital gains rates—and you may suffer the NIIT as well.


If it’s a rental, you face the capital gains rules, NIIT, unrecaptured Section 1250 gain taxes, and release of some (if grouped) or all (if not grouped) passive activity suspended losses.


When you have rental use after 2008 and then convert the rental to your principal residence, you must use a rental/residence fraction to determine how you will be taxed.


As you can see, the rules in this area can get complicated. If you're selling a beach house (or you would like to discuss these rules for another reason), please don’t hesitate to call me.

Drop us a message and see how we can help you!

“We leverage leading practices and disruptive technology to do more than just balance the books. We're actually building the business. And that's our edge.”
Robert L Whittley CPA
CEO & Founder

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