Do you pay capital gains tax when you sell a second home in Park City?
Yes, in almost every case. A Park City second home or vacation property is treated as a capital asset, so the federal exclusion that shelters $250,000 to $500,000 of gain on a primary residence usually doesn't apply. On a property you've owned more than a year, you'll typically owe federal long-term capital gains tax of 15% to 20%, a possible 3.8% net investment income surtax, and Utah income tax of roughly 4.5% on the profit. You can shrink the bill by adding capital improvements to your cost basis, subtracting your selling costs, or using a 1031 exchange when the home is a true rental rather than a personal retreat.
If you bought a place in Deer Valley, Empire Pass, or out in Promontory a decade ago, the gain on paper can be eye-opening. Park City single-family prices are up roughly 20% over the past year alone, and properties bought before the last few cycles have appreciated far more than that. The profit is the good news. The tax on that profit is the part most second-home owners understand the least.
The question we hear most often from sellers is some version of the same worry: how much of this do I actually keep? Here's the honest answer, along with the levers that can move your number before you ever list.
One quick note before we start. We're real estate advisors, not accountants, so treat this as a map and not as tax advice. Run your specific numbers with a CPA before you sell.
How capital gains tax works on a Park City second home
You're taxed on your gain, not your sale price. Gain is what's left after you subtract two things from the price the home sells for:
- Your cost basis—what you originally paid, plus the capital improvements you've made over the years (a re-roof, a kitchen remodel, an addition, a snowmelt system).
- Your selling costs—the agent commission, title and closing fees, and any resort transfer fee. In communities like Empire Pass, Promontory, and Canyons Village, that transfer fee alone can run into real money, and it comes off the top.
How long you owned the home decides which rate applies. Hold it more than a year and you get long-term capital gains rates, which are lower. Sell within a year and the gain is taxed as ordinary income, which is higher. Almost every second-home sale here is long-term.
For a long-term sale, expect roughly:
- Federal: 15% to 20% for most Park City sellers, depending on your total income. Very high earners also owe an extra 3.8% net investment income surtax.
- Utah: the state taxes the gain as ordinary income at its flat rate, around 4.5% as of 2026.
Put it together with a realistic example. Say you bought an Empire Pass condo for $1.8 million in 2014, put $200,000 into improvements, and sell this year for $3.2 million. Your selling costs come to about $250,000. Your amount realized is roughly $2.95 million, your basis is $2 million, and your gain is about $950,000. At a combined federal-plus-Utah rate in the high-20% range, you'd owe somewhere around $250,000 to $285,000. That's a big number, and it's exactly why the planning matters.
This is also a good moment to clear up a common mix-up. Capital gains tax is a one-time tax on the profit when you sell. It's completely separate from the annual property taxes you pay each year as an owner, where Utah's primary-residence exemption can roughly halve the bill on a home you actually live in. Different tax, different rules, different moment.
Why the $250,000 / $500,000 exclusion usually won't help you
Most people have heard that you can pocket up to $250,000 of home-sale profit tax-free, or $500,000 if you're married. That rule is real, and it's generous. It just wasn't written for the ski condo you visit six weeks a year.
The exclusion only applies to a primary residence, meaning a home you've owned and lived in as your main residence for at least two of the five years before you sell. A second home or vacation property you use for yourself doesn't meet that test, so the exclusion is off the table and the full gain is generally taxable.
There's a legitimate way to capture part of it: actually move in and make the property your primary residence for at least two years before selling. It works, but two catches keep it from being a clean shield. First, the years the home served as a second home or rental are treated as nonqualified use, and that share of the gain stays taxable. Second, if you ever rented the place out, you'll owe depreciation recapture on top, taxed at up to 25%. The strategy can help, but only if you genuinely live there and the math pencils out for your situation.
How to reduce or defer what you owe
You have more control here than most sellers realize. The moves that matter most:
- Raise your basis with improvements. Every capital improvement you can document lowers your taxable gain. On a mountain home, the big-ticket items add up fast—a new roof, a remodel, an addition, mechanical upgrades. Find the receipts before you list, not after.
- Subtract your selling costs. Commission, title fees, and resort transfer fees all reduce the gain. Keep the closing statement.
- Use a 1031 exchange if it's a true rental. If the property is a genuine investment, rented out and reported on Schedule E, in a subdivision where nightly rentals are allowed, you can defer the entire gain by rolling the proceeds into another investment property within 45 days to identify and 180 days to close. A home you mainly use yourself won't qualify, so whether your place is a personal retreat or a real rental matters enormously. It's worth knowing exactly where nightly rentals are allowed in Park City before you assume your property counts.
- Time the sale. Capital gains rates track your income, so selling in a lower-income year can drop you a bracket. An installment sale that spreads the gain across years can do the same.
- Know the step-up if you inherited it. An inherited mountain home gets a stepped-up basis to its fair market value at the date of death, which often means heirs who sell soon after owe little or nothing.
None of this is one-size-fits-all. The right move depends on how you've used the property, how long you've owned it, your income, and your timeline. This is exactly the kind of planning we walk sellers through before the sign ever goes in the yard, working alongside your CPA so the listing strategy and the tax strategy point the same direction. If you're weighing a sale, it helps to have an agent who knows the second-home and vacation-property market block by block.
Frequently Asked Questions
Does the $250,000 / $500,000 home sale exclusion apply to a second home?
Generally no. The exclusion shelters up to $250,000 of gain for a single filer or $500,000 for a married couple, but only on a primary residence you've owned and lived in for at least two of the five years before the sale. A vacation home you don't use as your main residence doesn't qualify, so the full gain is usually taxable.
What is the capital gains tax rate on a second home in Utah?
Owned more than a year, you'll typically pay a federal long-term rate of 15% to 20%, plus a possible 3.8% surtax for high earners, plus Utah income tax of roughly 4.5%. Owned a year or less, the gain is taxed as ordinary income at higher rates. Confirm the current figures with your CPA.
Can I use a 1031 exchange to avoid capital gains on a Park City vacation home?
Only if it's a genuine investment or rental property, not a personal retreat. A 1031 exchange defers the gain by rolling the proceeds into another investment property within 45-day and 180-day deadlines. A home you mainly use yourself doesn't qualify, but a true rental often does.
Do I pay Utah capital gains tax if I live in another state?
Yes. Utah taxes the gain on Utah real estate no matter where you live, so an out-of-state owner selling a Park City second home generally files a Utah nonresident return on the Utah-source gain. Your home state may credit you for the Utah tax, which a CPA can help you coordinate.
How can I lower the capital gains tax when I sell?
Add every capital improvement to your basis, subtract your selling costs, and keep records of both. Depending on your situation you may also convert the home to a primary residence for a time, use a 1031 exchange if it's a rental, or time the sale to a lower-income year. A CPA can model these against your numbers.
Planning a sale? Run the numbers before you list
The headline is simple: the primary-residence exclusion rarely covers a Park City second home, so most sellers will owe federal and Utah capital gains tax on the profit. The good news is that your cost basis, your selling costs, and how the property has been used all give you room to plan—if you handle them before the listing goes live, not after.
If you're looking for luxury real estate in Park City or anywhere across the Wasatch Back, we're happy to consult on the market and help you assess your options, including a clear-eyed look at your net proceeds. When you're ready, schedule a private consultation with our team, and we'll help you weigh timing, pricing, and the questions worth taking to your CPA. For sellers comparing their options, it's also worth understanding what sets apart the right luxury listing partner in Park City.
About David Lawson
David Lawson is the founder of the Lawson Real Estate Team, a luxury real estate group serving Park City and the greater Wasatch Back, including Hideout, Midway, Heber, and Kamas. He leads a team that has closed more than 3,920 transactions and earned recognition as the #1 eXp Realty team in Utah (2022–2025) and previously the #1 Engel & Völkers team worldwide (2019, 2021). David and his team specialize in high-end mountain properties—from single family homes and new construction to ski-in/ski-out vacation properties and short-term rental investments—guiding buyers and sellers through one of the most segmented luxury markets in the country.
