Capital Gains-- To sell or not to sell?

6 Replies

I lived in my house from 2011 to 2013, then I relocated due to work and rented the property out. I was not familiar with the rental process so I did not file anything related to rents until 2016. Am I required to pay capital gains taxes? If I do, I will have to reconsider selling. I owe 40k and I can sell it for 130-140k. Any feedback would be greatly appreciated.

Also, I intend to buy a multi-unit with the proceeds of this sell.

Look up the tax relief act of 1997, one of the cooler things Bill Clinton did for us, if you were living there as your primary residence for a full two years, I believe you're entitled to skip the capital gains tax up to $250,000/ person. Don't quote me on the specifics, but look up the act it's self & follow along. Good luck!

The dates at this point will be important, and it looks like the clock is ticking. In order to qualify for the Section 121 exclusion of capital gains you need to have used the house as your primary residence for 2 of the past 5 years. (As with everything with tax laws there are exceptions and modifications to that rule.)

Not sure what "I didn't file anything until 2016" actually means, and that could be important. The basis of real property used as a rental is required to be adjusted for depreciation 'allowed or allowable'. If the property is sold for more than the adjusted basis there will be unrecaptured section 1250 gain (depreciation recapture), and the section 121 exclusion will not get you out of that tax.

Highly recommend you talk to a tax professional familiar with real estate issues and get all the facts on your specific situation before you make a decision on selling.

Best of Luck on Your Real Estate Investing!

Yes, I see that this case is not so easy since I lived in the house only one of the past 5 years, I see the need of expert help here. Your input is very appreciated, Paul and Steve, best of luck to you too!

@Mariana Rojas If you did not file a Schedule E during the years you rented the property, you need to amend your tax returns. Consult with a CPA for guidance.

Great to know Lance, will have that checked. Thank you so much for your input!

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