Expert: Jonathan Montagne - 4/12/2008

Question
Our main home is in Florida.  Sometime in the near future we will want to sell our summer home in Missouri.  We have two children.  We would like to have access to the money from the sale of the home yet avoid as much capital gain taxes as possible.  Any suggestions?

Answer
If you lived in the home 2 of the last 5 years, then you should not have to pay any capital gains taxes.

If you put a mortgage on the property, you would be able to get the money out without taxes until the sale. You could rent the property to pay the mortgage and deduct interest and building depreciation from your taxes.

A third option would be to sell your summer home and buy a different property. You could do a 1031 exchange to transfer your equity tax free to the new property. It could be rented and a mortgage could be put on above.

In general, a 1031 exchange will let you transfer money tax free between properties. You don't need to do a 1031 exchange if the property was your residence for 2 of the last 5 years. You can pull out money tax free without selling by putting a mortgage on it. Taxes will need to be paid on capital gains at the sale even if you put a mortgage on it.