How to Transition Your Second Home into Your Primary Residence
If you own a home in Hawaii as a vacation home, an income property, or a second home of some kind and have decided to move into it as your primary residence, there are a few things you need to know first. There are practical tasks to be handled and tax implications to keep in mind.
We've outlined the step by step process for you below to help.
Start by Moving In
The first step in transitioning your second home into your primary residence is simply to move in. Whether that means taking your home off the rental market, ending the lease with your tenants, or simply establishing residency there, take the steps to formally move into the property.
This includes making sure all utilities are in your name, forwarding all mail to the address, and notifying your banks, employer, and insurance agents that you have moved. If you have children, you will also want to notify the local school district and register them for classes.
In order to be considered your primary residence, you need to live there at least 183 days out of the year. Moving in should mean you are meeting this qualification comfortably.
Decide What You are Doing with the Other Primary Residence
When you transition your second home into your primary residence, you can either sell the former primary residence or keep it. If you plan to keep it, remember that in order to have two primary residences, you have to meet all of these qualifications:
- Your family or household is too large to fit in just one of the properties
- Your LTV is 75% or lower
- All utilities and bills for both properties are in your name
Depending on your unique situation, it may benefit you more to sell the property or use it as an income property.
File the Important Paperwork
After you have established residency in the new primary residence, it's time to make sure you have filed the proper paperwork to avoid any issues with the IRS in the future. If you do not update your primary residence, you will likely be paying taxes to the wrong municipality and end up with a complicated situation to sort out.
To get everything in order:
- Update your voter registration according to your new primary residence. This can be done online in in the local voter's office.
- Notify your accountant to list the new address as your primary residence on all state and federal tax paperwork. If you miss this step, you may miss out on some tax benefits.
- Update your driving license. If you are moving to Hawaii from the Mainland, you will need to get a Hawaii drivers license. If you are moving from elsewhere in Hawaii, just make sure your address is updated on your license.
- If you are getting this home through a 1031 exchange, be clear with your tax professional about how the home will be used.
The Bottom Line: Taxes
The biggest issue that can arise when transitioning your second home into your primary residence is problems with your taxes. Rather than waiting until tax time to sort it all out, be proactive and work with a tax professional right away to find out what you need to do. Depending on a variety of factors like capitol gains taxes or a 1031 exchange, you may need to file certain paperwork or plan for a certain expense.
The best way to enjoy a smooth transition is to work with your trusted accountant. Some things are best left to the professionals.