How do I calculate capital gains tax when selling my vacation home & reduce what I'll owe?

Thanks for the info! For the 1031 exchange, does the new property have to be the same type? Like could I sell my condo and buy a single family home instead? And what about those capital improvements - do minor renovations count or only major stuff?

The new property doesn't have to be identical to your condo - it just needs to be "like-kind," which essentially means real estate held for investment or business purposes. So yes, you could sell your condo and purchase a single-family home as long as you're using it for investment rather than as your primary residence. For capital improvements, both major and minor renovations can count as long as they add value to the property, adapt it to new uses, or extend its life. This includes things like room additions, new roofing, updated plumbing/electrical, kitchen remodels, etc. Regular repairs and maintenance (fixing a leaky faucet, painting) typically don't qualify as capital improvements.

Does it really work with vacation properties specifically? I've used tax software before but they always seem confused about second homes vs. investment properties vs. primary residences. How detailed do I need to be with the documentation?

I'm a bit skeptical about these online tools. Did it actually save you more than what a regular accountant would have found? I've been thinking about selling my lakehouse but kinda worried about trusting something like this with such a big financial decision.

It absolutely works with vacation properties - that's exactly what I used it for. The system specifically asked me about how many days I personally used the property vs. rented it out, which helps classify it correctly for tax purposes. You'll want to upload your purchase documents, evidence of improvements, and usage records, but it walks you through exactly what you need. I actually tried an accountant first and then used taxr.ai as a second opinion. The tool found three improvement projects my accountant missed because I had forgotten to mention them during our meeting. The software prompted me about specific types of improvements that might be overlooked. Ended up saving about $4,500 in taxes I would have overpaid.

Wait, so this service just gets you through to an IRS agent faster? How does that even work? The IRS phone system is notoriously awful.

Sorry but this sounds too good to be true. I've literally spent days trying to reach someone at the IRS. No way some service can magically get you through when millions of others are calling too. What's the catch here?

It uses a technology that navigates the IRS phone tree and waits on hold for you. When they reach an agent, you get a call connecting you directly. It's completely legitimate - they don't do anything you couldn't do yourself if you had hours to waste on hold. They basically call repeatedly using smart technology to navigate the system efficiently and then connect you once they get through. I was skeptical too, but after spending 3+ hours on hold myself and getting disconnected twice, I was desperate. Got connected to an actual IRS agent in about 18 minutes.

That's interesting - I haven't actually used it as a primary residence at all, just vacation. But hypothetically, if I moved in now and lived there for 2 years, would I be able to use that exclusion? Would it matter that it was a vacation home for the previous years?

Yes, if you move into your vacation home and use it as your primary residence for at least 2 years before selling, you could potentially qualify for at least a partial exclusion. However, there's a calculation involved for properties that have been used as both vacation/rental and primary residence. The IRS has a formula that allocates the gain between qualified and non-qualified use periods. The portion of gain allocated to the period you use it as your primary residence would qualify for the exclusion, while the portion allocated to vacation/rental use would still be taxable. This is sometimes called the "vacation home conversion strategy," but you should definitely get professional advice before proceeding.

I went down that road last year. It works but it's complicated. Basically you donate the property to a trust, get a tax deduction now, receive income from the trust for life, and then the remainder goes to charity when you die. You avoid capital gains tax on the property sale but there are a lot of restrictions and setup costs.

This is really helpful - I hadn't even thought about the selling costs reducing the taxable gain! That could save me several thousand right there. Quick question about depreciation recapture though - I've never rented out the condo, just used it for family vacations. Would I still need to worry about that 25% rate, or does it only apply if you actually claimed depreciation deductions on tax returns?