Q: I have 2 houses, if I sell the second house and pay off my current house,
can I use the rest of equity to upgrade my current home and avoid taxes?
A:
If you sell your second house and use the proceeds to pay off your primary residence and upgrade it, there are still tax implications to consider. In California, when you sell real estate, capital gains tax will generally apply to any profit made on the sale, unless you qualify for specific exclusions. The federal government allows an exclusion on the sale of a primary residence of up to $250,000 for individuals or $500,000 for married couples, but this exclusion typically doesn’t apply to second homes.
You can't avoid taxes simply by reinvesting the money into your primary residence. However, you might be able to minimize taxes by deducting certain expenses or considering a 1031 exchange, but this is generally for investment properties, not primary residences. It's important to know that any remaining equity, after paying off your current home, may still be subject to capital gains tax.
It’s a good idea to make sure you understand your specific situation, including how long you've owned the second home and how much profit you'll realize from the sale.
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