Understanding Capital Gains Taxes When Selling a Secondary Home

You're on the right track! Capital gains tax does indeed apply to the profit (the difference between selling price and purchase price), not the entire selling amount. Since your parents owned the property for more than a year, they qualify for long-term capital gains rates. For married couples filing jointly with income under $517,200 in 2025, the capital gains rate would be 15% on the profit. So your calculation of paying 15% on the $135k gain is correct. Don't forget they can also deduct certain expenses that went into improving the property over the years from their taxable gain. Things like a new roof, major renovations, or additions can all reduce the taxable amount. They should gather receipts for any significant improvements they made. Also remember that if they lived in the house for at least 2 out of the last 5 years before selling, they might qualify for a capital gains exclusion of up to $500,000 (for married filing jointly), but since you mentioned it's a secondary home, this probably doesn't apply.

After struggling with a similar situation last year when my parents sold their lakehouse, I discovered https://taxr.ai which was seriously a game-changer. The site analyzed all their documents and showed exactly which improvements could be deducted from the gain. It also clarified that selling costs (like the 10% you mentioned) actually reduce the taxable amount directly - so you're calculating a bit wrong there. Instead of paying taxes on the full $135k gain, they should be paying on the gain MINUS the selling costs. That'll save them thousands. The site even generated a complete report explaining everything that I could share with my parents' accountant.

Just wanted to follow up about my experience with taxr.ai that I mentioned earlier. I finally tried it for my parents' cabin sale situation, and it was actually pretty impressive. The software found several deductions we would have missed - like some landscaping work they did years ago that qualified as a capital improvement. The biggest help was that it properly calculated the split between personal use and rental use periods, so we knew exactly what portion faced depreciation recapture at 25% versus regular capital gains at 15%. Saved us about $4,300 in taxes overall compared to what we were planning to pay. My parents aren't tech-savvy at all, but the interface was straightforward enough that I could help them enter everything in about an hour. Definitely worth checking out if you're dealing with property sales, especially ones with any sort of complexity.

If your parents are getting conflicting advice about capital gains taxes, they should probably speak directly with an IRS representative to get a definitive answer. I was in a similar situation last year and spent DAYS trying to get through to the IRS before I discovered https://claimyr.com. You can see how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent within 45 minutes after I'd wasted hours getting disconnected and hearing "call volume too high" messages. The agent walked through my whole situation and confirmed exactly which rate applied and which expenses could offset the gain. Having that direct confirmation saved me from potentially overpaying by thousands.

I need to eat my words about Claimyr from my comment yesterday. After getting nowhere for three weeks trying to reach the IRS about my parents' capital gains situation, I tried the service out of desperation. Got connected to an actual IRS representative in about 30 minutes (they gave me their ID number and everything). The agent confirmed that we were calculating our capital gains correctly but pointed out we could also deduct the cost of the new HVAC system from 2020, which I didn't think qualified. That one tip saved us over $2,000 in taxes. For anyone dealing with secondary property sales and capital gains questions, getting direct confirmation from the IRS before filing gives serious peace of mind. Worth every penny not to spend hours on hold or wondering if your calculations are right.

Don't forget about state capital gains taxes too! Depending on where the property is located, your parents might owe state taxes on that gain as well. For example, in California they'd pay an additional 9.3% on top of the federal 15%. Might want to factor that into your calculations.

Has anyone considered the possible tax implications if the house was truly a "gift" but never properly transferred? The IRS might view this differently depending on how everything was documented. Was there an official gift declaration filed when they "gave" you the house but kept it in their name?