This is not my own personal situation, I’m trying to help out a friend of mine…
The story begins…
My friend lives in California, bought a house last year around this time for around 500k… I believe he fixed up the house and the value of the home is now around 650-700k… Plus whatever equity the house has went up since then… This was his 2nd home… Not his primary residence.
Now he needs money to make monthly payments or sell the house, but if he sells the house he would need to pay huge lump sum of 30% in taxes. I know he doesnt want to do that, so is there anyway he could avoid paying that much in taxes if he chooses to sell this home? I know the 1031 process but he needs money and that wont help him.
I dont believe he can refi the house without the pre pay penalty either.
What are his options?
How can he overcome the 30% bracket?
I’m not a tax expert, but we have bought and sold a number of places and am pretty familiar with the 1031 laws. First of all, if this is truly a 2nd home, 1031 is not usable. Sec. 1031 applies only to investment properties, not residences.
I know if you sell your primary residence, you most times pay no taxes, …but, rules may be different for 2nd homes. We will soon definitely find out, as we are just now in the process of buying a second home and will fix this one up as well.
I usually read the appropriate IRS booklets then ask for professional help. There is a tax expert in this group named JOHN HYRE. His advice has always been sound for me. If you can’t find a post, I believe he is selling one product here…tax advice or tax help program, something along those lines.
Is it a true second home or an investment property?
It can be converted to an investment property. Find an occupant that will pay the mortgage or plus some. Properly structured the person can get all the benefits of ownership and buy it later and after the year and a day it becomes long term capital gains at 15% or 1031 eligible.