Main Content

How to Avoid Capital Gains Tax on Your Vacation Home – Part 3

Back to Blog

Avoiding capital gains taxes can be one of the best ways to maximize the return on your investment when selling a vacation home.

As we discussed in Part 2 of this series, there are steps you can take to reduce your tax liability, such as claiming your vacation home as your primary residence. But swapping an investment property for another can also help investors with vacation homes for sale in Kissimmee, Florida avoid taxes on their capital gains.

Work with a Qualified Real Estate Professional

Replacing your vacation home with another property isn’t as straightforward as it might sound. There are rules and regulations you need to follow. For example, you won’t be able to carry out the transaction with any broker or other professional who you have worked with during the 24 months before the exchange.

It’s best to find someone with experience in real estate transactions involving the replacement of a vacation home with a similar investment property. When you understand the requirements for this type of transaction, you can avoid capital gains taxes as well as unwanted issues or delays.

Purchase Another Property Similar to Your Vacation Home

After you’ve found a buyer and sold your Kissimmee vacation home, you can use the money earned from the sale to purchase a similar property.

Home investors can avoid capital gains taxes as long as the replacement home is purchased within 180 days of closing on the sale of their first home. A real estate professional can help you find properties similar in value to your original home, and you may also use the funds to purchase a commercial property or an undeveloped lot.

Completing the Transfer to Avoid Capital Gains Tax

When the purchase of your replacement property has been finalized, you’re free of any capital gains tax liability until you decide to sell your new home.

Making sure that the transaction meets the requirements for “like-kind” exchanges as outlined by the Internal Revenue Service (IRS) is critical to protecting your financial interests.

You can inform the IRS of the transaction by completing and filing Form 8824. The form lets you provide details related to the transaction, and you’ll need to submit the form along with any other documents that may be required.

Knowing how to avoid capital gains taxes is just one way you can maximize the benefits of investing in any of the vacation homes for sale in Kissimmee, Florida. There are other tax rules to consider, as well as how best to market your short-term rental to holiday guests.

If you want to find out more, Contact Team Donovan today at 407.705.2616 and schedule your free consultation. We specialize in helping home investors buy and sell vacation homes in Orlando’s theme park area, while making sure you get a higher return on your investment.