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How to change a second home to a primary home & why

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Real Estate Broker/Owner with Morningside Homes, LLC 720-231-5200 DRE# ER300941

 

The tax benefits of owning both a first and second home can be significant, with the IRS allowing taxpayers to deduct interest and property taxes on both properties as itemized deductions on their tax returns, albeit with certain limitations. Interest deductions are limited to the amount of debt incurred to buy, build, or improve the first and/or second home, with a maximum cap of $750,000. Property taxes, falling under the limitation of state and local taxes as set forth in the TCJA of 2017, are capped at $10,000 per year.

However, while second homes enjoy these benefits, they do not qualify for the Section 121 exclusion sale of principal residence rules. These rules only apply to a taxpayer's principal residence, allowing couples filing jointly to exclude up to $500,000 of capital gain from the sale of their primary home, and single filers up to $250,000 of gain, provided they have owned and used the property as their principal residence for two out of the five preceding years.

Taxpayers considering selling their second home, which wouldn't qualify for the exclusion, may explore changing its status to their principal residence. This entails owning and using the property as their principal residence for two years, along with careful documentation and planning to qualify for the exclusion. Indicators of a principal residence include making the second home the preferred mailing address for various documents, ensuring all family members reside there most of the time, having utilities in the homeowner's name, and updating addresses with relevant entities.

Changing the status of the second home to the principal residence can be beneficial to avoid recognizing gain on the sale. However, it's crucial to consult with a tax advisor to determine eligibility and ensure proper documentation and support for the change. This guidance will help navigate the process effectively and maximize tax benefits for the homeowner.

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Buy or Sell with Patty Clark              Denver/Aurora Co. and surrounding areas 

Chris and Patty

Helping Families Move with Care

If you would like to be sent properties on a daily or weekly  basis just call or email me and let me know your wants and needs. A match will be made with a home you love and with monthly payments you can afford. I specialize in first time home buyers and sellers who are ready to downsize or move to a larger home as the family grows

Morningside Homes, LLC
patty@morningsidehomes.com
www.morningsidehomes.com
Cell: 720-231-5200                      
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