@WPKJen wrote:
Some friends had an LLC, and they rented a home to my husband and I. After about four years, we bought out 30% ownership, but continued to pay rent to the LLC. We've now lived here for 7 years and are ready to sell the house. If we do, do we have to pay Capital Gains taxes on it?
You would not be able to use the Section 121 exclusion because the LLC is not disregarded for federal tax purposes as an entity separate from its owner under Section 301.7701-3 (i.e., you do not meet the ownership test).
See Treas. Reg. §1.121-1(c)(3)(ii)
