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What Are Tax Liabilities on the Sale of a Vacation House?

by Rob Seltzer, CPA/PFS

I own a house in Huntington Beach, Calif., which I only use for vacations as I live in Chicago. If I sell the house and earn a profit, what are my tax liabilities?

I assume that you have taken no depreciation on the property and that you’ve only used it as a vacation home, not as a rental. I also assume that you have owned the property more than one year. With those assumptions, the gain is calculated as follows: sales price minus seller’s closing costs, minus original cost basis, minus the cost of any capital improvements since acquisition.

For argument’s sake, let’s say you sell the property for $750,000. You originally purchased the property for $500,000. Your portion of the closing costs is $50,000, and over the time you owned the property, you made $50,000 in capital improvements. Your gain, therefore, will be $150,000.

Your federal tax will be at the capital gain rate of 15 percent of the amount calculated above as your gain. Since you are a non-resident, California will withhold 3.33 percent of the sales price and require you to file a state tax return. If your California income tax ends up being different when you file the state return, you will either owe more or get a refund.

California has graduated rates. The top bracket is 9.3 percent. You will get a credit for some of the taxes paid in California in your home state of Illinois. However, you won't get a complete credit because California has higher tax rates than Illinois.

Rob Seltzer is a Beverly Hills CPA and personal financial specialist. You can reach him at (310) 278-9944.

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