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Avoid tax on vacation-home sale

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in Small Business Tax

Q: I am selling a vacation home. My daughter owns a lot where I can build a new house. Can I roll over the profit from the old home into the new home tax-free? R.C., Dunwoody, Calif.

A: To qualify for the tax exclusion for home sales, you must have owned and used the home as your principal residence for two of the past five years. But you do have a few possibilities: (1) Convert the vacation home into an investment property by renting it out. Then swap the property for another "like kind" property tax-free. It's permissible to set up a three-way exchange involving your daughter's lot. (2) Alternatively, you might establish the vacation home as your principal residence, and then sell it after two years.

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