Capital Gains Taxes on Sale of Rental Property

[ProPerDoper]

What is the name of your state? CA

In October 2007 we purchased a new home. In November 2007 we rented our old home.

I knew I didn't want to sell our existing property in a bad market, so I borrowed here, negotiated there, and now we have two.

We can swing both okay, and the rental market here is fairly strong.

However, if I was to consider selling the rental and rolling the equity into our new home, what would the tax consequences as far as capital gains be?

I read elsewhere here that gains are paid unless you lived in the home the last 2 out of 5 years. Is this rule accurate, and does it apply even after we've moved into another home?

 

[tranquility]

You cannot roll your capital gain income from a rental into your personal residence tax free. "Equity" is a term to describe the fair market value of property less the amount of the debt outstanding. It is completely unrelated to capital gains which is the amount realized less the basis. You will pay taxes on capital gains at advantaged rates unless you held the property for less than a year. You will pay as ordinary income to recapture some of the depreciation taken when you sell.

It's not that complex, but requres more than a paragraph to describe. Go to the library to get a book. Anyone with any significant investment in real property should understand the basics.

 

[ProPerDoper]

You cannot roll your capital gain income from a rental into your personal residence tax free. "Equity" is a term to describe the fair market value of property less the amount of the debt outstanding. It is completely unrelated to capital gains which is the amount realized less the basis. You will pay taxes on capital gains at advantaged rates unless you held the property for less than a year. You will pay as ordinary income to recapture some of the depreciation taken when you sell.

It's not that complex, but requres more than a paragraph to describe. Go to the library to get a book. Anyone with any significant investment in real property should understand the basics.

Thanks for the reply.

It sounds like you are saying that I lost my ability to roll my equity between the properties once I put the old home into service as a rental?

 

[tranquility]

If what is now your rental, *had been* your personal residence and you had owned and lived in the property 2 of the last 5 years (the times do not need to be contemporaneous), you can take the 121 exclusion on the sale. You can put that money where ever you want.

 

[ProPerDoper]

Thank You!

I suspected that was the case, and was certainly hoping so.

Your responses have been very helpful....thanks.