Q: I purchased a second home, in another state, eight months ago. I am about to sell it for a profit. I believe I will have to pay taxes on the gain. Can I reinvest the gain and not have to pay tax on the profit?
A: Sorry, your first assumption is correct. You will have to report the gain. Use Schedule D to figure out your profit.
Since you describe this as a second home, it counts as personal-use property, not investment property. In the case of investment or business property, there is something called a like-kind exchange, a transaction in which you sell a property and purchase another business or investment property of like nature or character. In that case, your gain, if any, is not recognized but is deferred. Personal-use property is not eligible for like-kind exchanges.
These questions are actual inquiries submitted by taxpayers to our AARP Tax-Aide Program. The AARP Tax-Aide Program is a volunteer-run, free tax-preparation and assistance program offered to low- and middle-income taxpayers with special attention to those age 60 and older. Our volunteers are trained and IRS-certified to understand individual federal-tax issues. Our volunteers provide tax assistance as a public service and cannot guarantee the accuracy of the information provided.