I wanted to tap into the advice from the group: we have a property that has turned into rental in early 2018 but was our primary residence for 5 years before that. If the house were to go on the market, would the gains be subject to the Cap Gain tax?
The property is currently a rental and has been moved into an LLC early last year. Also, how difficult is it to sell a property from the LLC versus an individual ownership?
@Olena Canessa , you may be able to still apply the Section 121 personal residence exclusion if you lived in the property for at least 2 out of the last 5 years. So, based on your scenario, if you meet the other requirements of Section 121, yes, you may be able to exclude capital gains of $250,000 if individual or $500,00 if married couple. The transfer to an LLC may present problems if there are any additional members that weren't on the original title/living in the property.
The sale of a property in an LLC is not overly difficult, if the Realtor or parties understand the additional steps.
Thank you @Bryan Zuetel - very helpful!
Is the LLC a disregarded entity such that all the assets are still in your Social Security number? Or is it a separate taxpaying entity that has its own EIN? Individual taxpayers can exclude gain for the sale of a personal residence used by them as a personal residence for 2 of the last 5 years under Section 121 of the Internal Revenue Code. However, you may have a period of "non-qualified use" that cannot be excluded and need to do a calculation as to how much can be excluded how much is subject to gain. You also may have depreciation recapture. You'll want to discuss with your CPA who is familiar with all the facts and circumstances. If you need references in San Diego, let me know.
*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
@Katie Lepore - thank you so much for the guidance!
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