A Second Home & Capital Gain Tax Rules

By Patrick Gleeson, Ph. D.,

Holiday pay policies for part-time employees often are much different from those for full-time workers. Nevertheless, no federal laws say an employer must offer vacation, personal days or holiday pay to employees in either class as long as the rule is applied fairly. Additionally, while state employment laws differ in some aspects, they generally follow federal guidelines concerning holiday pay. However, overtime laws still apply.

Capital Gains on Sales of Real Estate

Even though the federal Fair Labor Standards Act doesn’t address holiday pay as a separate topic, a part-time hourly employee who works on a recognized holiday must receive at least the agreed upon wage, including overtime if it applies. However, this rule doesn’t apply to exempt workers as they must receive at least $455 each week no matter how many hours they work or face losing their exempt status.

Employers that choose to offer holiday pay to part-time employees can choose how many hours to include. For example, while full-timers may receive eight hours, part-timers might only receive four hours of holiday pay. Additionally, an employer has the option to require that every employee work the day before and/or after a paid holiday to be eligible to receive holiday pay.

Short Term vs. Long Term Capital Gains Rates

Taxpayers filing individually and earning less than $9,225 pay no taxes on short-term capital gains or any other ordinary income. From there, the applicable rates increase in seven steps to a rate of 39.6 percent on income of $413,200 or more.

Taxpayers filing jointly and earning less than $18,450 pay no taxes on short-term capital gains. The applicable rates increase in seven steps to a rate of 39.6 percent on income of $464,850 or more.

Taxpayers filing individually and earning less than $37,450 pay no taxes on long term capital gains. Those earning between $37,450 and $413,200 pay 15 percent, while those with incomes greater than $413,200 pay 20 percent.

Couples filing jointly and earning less than $74,900 pay no taxes on long term capital gains. Those with incomes between $74,900 and $464,850 pay 15 percent, and those with incomes above $464,850 pay 20 percent.

Complications

Internal Revenue Service treatment of real estate, including sales of second homes, falls within its treatment of any capital asset sale. With your income tax return's Schedule D (Form 1040) Capital Gains and Losses, you also file a Form 8949 Sales and Other Dispositions of Capital Assets.

There are possible complications related to the sale of your second home, but the essence of IRS capital gains regulations is that if you've held the home for less than a year, your tax rate on its sale is the short-term capital gains rate -- the same rate as for ordinary income. If you've held it for a year or more, your tax rate is the lower long-term capital gains rate.

The Vanishing Exclusion

Taxpayers filing individually and earning less than $9,225 pay no taxes on short-term capital gains or any other ordinary income. From there, the applicable rates increase in seven steps to a rate of 39.6 percent on income of $413,200 or more.

Taxpayers filing jointly and earning less than $18,450 pay no taxes on short-term capital gains. The applicable rates increase in seven steps to a rate of 39.6 percent on income of $464,850 or more.

About the Author

I am a retired Registered Investment Advisor with 12 years experience as head of an investment management firm. I also have a Ph.D. in English and have written more than 4,000 articles for regional and national publications.

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