Is It Time to Sell Your Vacation Home? 3 Tax-Smart Ways to Decide

In many areas, vacation home prices have surged—alongside property insurance costs. If your second home has appreciated significantly, you might be wondering: should I sell and simplify?

Selling outright might bring a hefty tax bill, but there are smart ways to reduce that impact. Here are three strategies that can help you decide what’s best for your financial and personal goals:

1. Convert the Property into Your Principal Residence

If you live in your vacation home for at least two years, you may qualify for the home sale gain exclusion—up to $250,000 for singles or $500,000 for married couples. But remember: time used as a rental after 2008 may reduce this benefit.

2. Use a Tax-Deferred Section 1031 Exchange

Have you rented out your vacation property? You might qualify for a like-kind exchange, rolling over gains into a new property—without paying tax today. Strict timelines and safe-harbor rules apply, so work with a tax professional.

3. Hold the Property

Doing nothing may be the smartest move. If you keep the property until death, your heirs may benefit from a “step-up” in basis—meaning they pay little to no capital gains tax when selling later.

Not Just About Taxes

Taxes are a big factor, but emotional value, legacy plans, and lifestyle goals matter too. There’s no one-size-fits-all answer.

Need guidance tailored to your situation? Contact Verity CPAs at info@verity.cpa or 808.546.5026. Let’s create a tax-smart plan for your next move.