I live in Illinois and purchased a summer home in Wisconsin 40 years ago for $43,000. Over the last 10 years I have taken out Home Equity loans up to the current loan balance of $565,000. Now, I am selling that vacation property in Wisconsin and may only get $600,000 for it. My only income is $1100 per month Social Security, and I have a reverse mortgage on my primary residence in Illinois, with about $60,000 in available equity remaining.
1) Do I have to treat the entire amount of home equity as profit in calculating Capital Gains? In other words, $565,000 minus the $43,000 + improvements (minimal) upon the sale of the second home?
2) Do I pay Illinois or Wisconsin capital gains? And what percentage are they?
3) If I have no money to pay the capital gains, what will happen?