Selling Your Vacation Home? Be Careful of These Tax Surprises

Tax Relief Insights & IRS Help Articles

Thinking about cashing out on your vacation home? You’re not alone. Property values have skyrocketed, but so have the tax surprises that come with selling. At IRSProb.com, we help homeowners avoid nasty IRS headaches. Here’s what you need to know before you list that second property.

No Tax Break Like Your Main Home

If you’re selling your vacation home, don’t expect the same sweet deal you get on your primary residence. The IRS lets you exclude up to $250,000 in gains if you’re single (double that if married) on your main home sale. But your vacation home? Full capital gains taxes apply. And if you’ve done well on that sale, Uncle Sam’s coming for a chunk.
Example:
Bought your vacation home for $300,000, sold it for $900,000? That’s a $600,000 gain. You could owe over $120,000 in federal taxes alone… before state taxes even enter the chat.

Your Receipts Can Save You Cash

Want to lower that tax hit? Keep every receipt for upgrades to your vacation home. New deck? Renovated kitchen? Roof replacement? Those costs can increase your home’s “basis,” reducing your taxable gain.
No receipts? No deduction. It’s that simple.

Rental Property? Expect More Tax Surprises

If your vacation home doubled as a rental, here’s another tax surprise: depreciation recapture. You likely claimed depreciation while renting it out. When you sell, the IRS takes some of that back at a 25% tax rate. Example: Claimed $40,000 in depreciation? That’s a $10,000 tax bill waiting for you.

Selling Could Spike Your Medicare Premiums

Here’s a sneaky tax surprise most folks miss. A big sale from your vacation home can inflate your income, triggering IRMAA (Income-Related Monthly Adjustment Amount). Translation? Higher Medicare Part B and D premiums for the following year. Sell in 2025? Watch your premiums jump in 2027.

Smart Moves to Dodge the Worst Surprises

Want to avoid the nastiest tax surprises on your vacation home? You’ve got options:
✔️ Make it your primary residence for at least 2 of the last 5 years before you sell. You may qualify for the home sale exclusion.
✔️ If it’s been a rental, consider a 1031 exchange. Swap it for another investment property and defer taxes entirely. But the rules are strict, so get help.

Bottom Line from IRSProb.com

Selling your vacation home can mean a big payday… and a big pile of tax surprises. But with smart planning and the right team, you can keep more of your money. Need help before you sell? IRSProb.com makes sure you know exactly what you owe, what you can save, and how to keep the IRS off your back.