If you own two homes, the time may come when it makes sense to sell your primary residence and move into your second home. For example, you might do this if your children are living independently and you don’t need a big house any more. Alternatively, downsizing might be a prudent tactic if you’ve been widowed or divorced.
There are tax advantages to this strategy:
* On the sale of a primary residence, $500,000 worth of gains is tax-free ($250,000 if you file your tax return as a single person). To get this break, you must have owned the home and used it as your principal residence for at least two of the previous five years.
* Any gain on the sale of a house in excess of the $250,000 or $500,000 tax break will be taxed at 15 percent as long as you owned the house at least a year.
* After you move into your former vacation home, you can sell that house after living there for at least two years. At that point, you’ll qualify for another $250,000 or $500,000 capital gains exclusion.
