IRS says: No Capital Gains Tax for You if you sell your section 8 rentals!

4 Replies

There is a catch of course, but that is normal when dealing with the IRS.  However if you have a long time Sec 8 rental, and you wouldn't mind to sell at ZERO Cap Rate this is your lucky day!!

Read the details on this directly from the quote below from the IRS publications:

Low-income housing. Low-income housing includes all the following types of residential rental property.

  • Federally assisted housing projects if the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws.
  • Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed.
  • Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under provisions of state or local laws that authorize similar subsidies for low-income families.
  • Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949.

The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition

That 8 year 4 month hold before an owner can see depreciation recapture benefit... that's a real killer. It so happens that we have a property that fits this scenario for sale now. I'll follow up after sale/taxes to see how this plays out. 

@Chris Martin  It does sounds great, and definitely keep us updated. This information can hopefully save you, I and others who are about to dispose a Sec 8 rental, many thousands of $$$$$!

I wonder if @Joshua Dorkin  agrees, that may be we should Sticky the above posting so many of the BP members could become aware of it? I don't believe that even the seasoned RE investors have heard of this IRS rule yet. I know it is new to our CPA!

I have a member meeting on Friday. I hope I can do the analysis of tax benefit vs. rent loss by sequestration by then. When our S-8 rents started dropping significantly last year, we left the program. I'll have to see how many properties we have that have been in the program over 8 year 4 month. 

@Chris Martin How did it work out for you with the Section 8 properties? 

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