Capital Gains on Cabin Sale

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We purchased a "fixer-upper" cabin and closed on 6/30/2023, taking out a $210K mortgage, before we were able to sell an existing cabin. We sold the existing cabin, which was owned with no debt, and closed on it on 9/19/2023. The new cabin price was $380K and the old cabin sale price was $185K, clearing about $175K after the realtor and other fees. We purchased land and built the cabin that we sold for approximately $165K. We are using the proceeds from the sale of the original cabin to create a cabin that is mold-free, critter-free, and inhabitable. Will we still need to pay some type of capital gains on the proceeds from the sale of our original cabin?

Answers

  • JMSSGV
    JMSSGV Member Level 5
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    Were these for personal use or investment/rental properties? If the latter, were you attempting to do a Section 1031 exchange?

    If the original cabin was for personal use, the mortgage and the purchase of the new cabin have no effect on your tax situation. Your capital gain would be the difference between your basis (the purchase price + any capital improvements) and the sales price, less any selling costs. If it did not meet the rules for the exclusion of gain on a personal residence, you would count this as a long term capital gain (assuming it was held for more than a year.)

  • RustyL
    RustyL FreeTaxUSA Agent
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    Thanks for that response JMSSGV.

    Tax2023mkd, the software will walk you through entering the information for your cabin in the 'Stocks or Investments Sold' section of the 'Income' tab. If the original cabin was your main home, however, you would enter it in the 'Sale of Main Home' section which you can find under the same tab. That section will also help determine if you qualify for the exclusion.