New to Real Estate · Chicago, IL · Member since 2020 · 15 posts · 5 votes
Hello,
I am located in Chicago, IL looking to sell my 2-flat after owning for a 1.5 years. What type of tax I will have to pay on the property? I owned-occupied one unit and rented the other
If possible, I'd recommend staying in the property for 6 more months. Based on the situation around the country, I'm guessing you've gained a pretty serious amount of equity in the home and if you sell now you'd have to pay capital gains tax. If you stay in the property until 2 years you wouldn't have to pay tax on up to $250k of your gain.
If possible, I'd recommend staying in the property for 6 more months. Based on the situation around the country, I'm guessing you've gained a pretty serious amount of equity in the home and if you sell now you'd have to pay capital gains tax. If you stay in the property until 2 years you wouldn't have to pay tax on up to $250k of your gain.
Have you lived in the property the entire 1.5 years?
From https://www.bankrate.com/taxes/capital-gains-tax-on-real-estate/#:~:text=If%20you%20sell%20a%20house,on%20your%20income%20tax%20bracket.
"You can sell your primary residence and avoid paying capital gains taxes on the first $250,000 if your tax-filing status is single, and up to $500,000 if married filing jointly. The exemption is only available once every two years. To qualify the property as your primary residence, the IRS requires that you prove that it was your main home where you lived most of the time. You’ll need to show that:
-You owned the home for at least two years.
-You lived in the property as the primary residence for at least two years.
However, there is wiggle room in how the rules are interpreted. You don’t have to show you lived in the home the entire time you owned it or even consecutively for two years. You could, for example, purchase the house, live in it for 12 months, rent it out for a few years and then move in to establish primary residence for another 12 months. As long as you lived in the house or apartment for a total of two years over the period of ownership, you can qualify for the capital gains tax exemption."
If possible, you should consider staying in the property for the full 2 years.
@Jehanzeb Beg this is where it gets tricky if you don't have an accountant doing your taxes. In theory, you should have been depreciating part of the property and treating it like a regular rental property. That part would have depreciation recapture and all that fun stuff that we RE investors hate to unravel. The side you live in as others have already said would be tax free if you can make it to two years.
A lot of times when I have conversations like this with sellers, I mention that the sales process is likely to take 60-75 days anyways on a multi unit. Even if everything goes perfectly, if you list this home in a month or two you will be very close to the 2 years by the time you close. I agree with the other folks on this thread that it makes sense to get to two years if you can, but a good accountant can help you calculate the amount that you are actually saving. Sometimes life happens and you just want to pay the taxes and move on too.