Rolling Equity From a Second Home to Investment Property

[Nathaniel Yip]

Can a second home be rolled into an investment home property either using 1031 or if there is a tax shield like primary homes? This second home has only been owned for a little over a year and has gained some equity. If this is state dependent I’m in CA.

I think I remember something about it having to be reclassified first for a certain amount of years first.

[Vincent R.]

I'm definitely not an expert, but...

I believe if you've lived in the property (2 years?) Then you don't get taxed capital gains on equity accrued. 1031 should delay any capital gains, but you have a limited window to apply it. 

So as a second home... I'm assuming it depends on if it was rented out (short-term rental?) a certain number of days or if you actually resided in the property a certain number of days. The following article suggests youd actually have to live in the property (label it your primary) for 2 years, but you could also 1031 gains or depreciate repairs you've done since purchase. https://www.upnest.com/1/post/capital-gains-taxes-second-home/#:~:text=If%20you%20don't%20have,you%20made%20from%20the%20sale.