A second home does not get the $250,000/$500,000 home sale exclusion, and if you rented it out, the depreciation is taxed at up to 25%. Moving in first helps only in part. Enter your numbers to see the tax on selling your vacation home and what you keep.
By Hans Goldstein, EA, founder, Retirement Literacy Foundation. 2026 federal law, every rate sourced below.
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Worked example
A married couple in California sells the Lake Tahoe cabin they bought 14 years ago for $450,000. They put in $60,000, rented it some summers ($30,000 of depreciation), sell for $1,100,000 with $60,000 of costs, and have $150,000 of other income.
| Line | Amount |
|---|---|
| Estimated tax on your second home sale | $158,776 |
| Amount realized (price minus selling costs) | $1,040,000 |
| Adjusted basis (price paid plus improvements, minus depreciation) | $480,000 |
| Total gain | $560,000 |
| Depreciation from rental use, taxed up to 25% | $30,000 |
| Taxable gain | $560,000 |
| Federal income tax (incl. any AMT) | $89,305 |
| Net investment income tax (3.8%) | $17,480 |
| California tax | $51,991 |
| What you keep after tax (before paying off any mortgage) | $881,224 |
Spread the same taxable gain over 5 years with an installment sale and the tax drops from $158,776 to $140,014: they keep $18,762 more (2026 law and income held flat; interest on the note left out).
Computed October 13, 2026 with the same engine the calculator uses: 2026 federal brackets (IRS Rev. Proc. 2025-32), state rates as coded for 2026. Illustrative; your numbers will differ.
How it works
Common questions
Yes. A second or vacation home does not qualify for the home sale exclusion, so the whole gain is taxed at 0%, 15% or 20%, plus 3.8% NIIT at higher incomes, plus your state's tax.
Partly. After 2 years as your main home you can use the exclusion, but the share of the gain from second-home years after 2008 stays taxable, and any rental depreciation is always taxed.
Under 15 days a year, the rent is tax free and there is no depreciation to recapture. More than that and the rental share is depreciated, and that depreciation is taxed at up to 25% when you sell.
Generally the state where the home is, plus your home state, which usually gives a credit for the tax paid to the other state. Pick the state where the home is located; Washington exempts real estate from its capital gains tax.
If you carry a note for the buyer, an installment sale reports the gain as you are paid (IRC 453). The calculator shows one year next to the same gain spread out.
Related: Home sale capital gains calculator · Rental property capital gains calculator · Capital gains tax calculator · 1031 boot calculator · Net investment income tax calculator · Estimated tax after a sale
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Reviewed for the Retirement Literacy Foundation, a 501(c)(3) education nonprofit. Prepared by Hans Goldstein, EA, retirement educator. Admitted to practice before the IRS. Informational only. Not tax, legal or investment advice. Every figure below cites its source so your CPA or attorney can check it.
Figures are 2026 federal amounts unless stated. Examples are illustrative and rounded; your numbers will differ. By Hans Goldstein, EA, founder, Retirement Literacy Foundation. Last reviewed .
Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS.