While the federal income tax home sale gain exclusion break is still on the books, it’s only available for the sale of a principal residence.  That said, a vacation home will sometimes qualify for the gain exclusion break if you’ve also
used the property as a principal residence.

The tax-code-defined vacation home rules come into play when you have both rental and personal use of a home.  Thus, you can have tax-code-defined vacation homes in the city, in the suburbs, and in recreation areas.  If you have no combined rental and personal use of the home, the rules are easy. The property is one of the following:

Rental property
Second home
Principal residence

But when you have both rental and personal use of the home, your tax life gets more complicated because you have entered the tax code’s vacation home section. In this situation, the property in a more complicated way is one
of the following:

Rental property
Second home

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