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@user17684044706 wrote: He purchased the property in 1993 for $88,000.00. He did paint the house recently (is the only upgrade done) and paid $4,400.00 for that job.  Yes, he must report the gain and pay capital gains tax.  His gain is the difference between his cost basis and the selling price, and may have no relationship to the actual amount of cash.    His cost basis what he originally paid, minus depreciation he took or should have taken while he was renting the property.  For 20 years and a purchase price of $88,000, he probably took about $59,000 of depreciation, leaving an adjusted cost basis of around $29,000.   His selling price can be reduced by certain selling expenses such as advertising and real estate commission.  Let's say for the sake of argument that his total expenses are 10%, so his net selling price is $288,000 (his real expenses might be more or less).    That means his capital gains is (from these example numbers) $288,000-$29,000=$229,000.   The first part of capital gains that came from depreciation is taxed as depreciation recapture, which is taxed as ordinary income with a maximum of 25%.  The rest of the capital gains will be taxed by the IRS as a long term capital gains at 0%, 15% or 20%, depending on your father's other income.  California will tax the entire gain as regular income.