Solved: Do I pay capital gains on my property sale?
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ndrwrly1
Level 1

Do I pay capital gains on my property sale?

Here's the synopsis:

-Appraised value at time of purchase was $55-60k

-Owned property a little over five years

-was my primary residence for a little over two years before I went active duty

-Went Active Duty; rented out property for three of the five years

-Today the appraised value and sale price is $120k

-When the sale is complete, net gain is going be roughly $60k

 

Question breakdown:

1) Do I meet the 2 out of 5 rule (sounds like I do)

2) Is this considered a long-term capital gain that I'll have to pay tax on due to the increased value? If so, what is the percentage rate?

3) Assuming I do not owe any taxes, should I stop the real estate agent/title company from reporting the 1099-S or does that even matter as long as I can prove residency at time of filing?

4) Lastly, the 1099-S asks if you used the property for business purposes. I marked yes due to rental, but should that matter if I am eligible for the 2 out of 5 exclusion?

 

Thank you 

1 Best answer

Accepted Solutions
Critter-3
Level 15

Do I pay capital gains on my property sale?

1) Do I meet the 2 out of 5 rule (sounds like I do)  You do and because you are military the rule is 2 out of 10 years

 

2) Is this considered a long-term capital gain that I'll have to pay tax on due to the increased value? If so, what is the percentage rate?  It is long term cap gain  however you will be able to exclude everything but the depreciation recapture which I hope you have been taking ... if you did not seek local professional assistance to file the return and correct the oversight.  Depreciation recapture is taxed at the same rate as wages however it is capped at no more than 25%. 

 

 

3) Assuming I do not owe any taxes, should I stop the real estate agent/title company from reporting the 1099-S or does that even matter as long as I can prove residency at time of filing?  Since it was a rental they MUST issue the 1099-S.

 

 

4) Lastly, the 1099-S asks if you used the property for business purposes. I marked yes due to rental, but should that matter if I am eligible for the 2 out of 5 exclusion?  Again you must mark it was a rental ... it is not an option. 

View solution in original post

1 Reply
Critter-3
Level 15

Do I pay capital gains on my property sale?

1) Do I meet the 2 out of 5 rule (sounds like I do)  You do and because you are military the rule is 2 out of 10 years

 

2) Is this considered a long-term capital gain that I'll have to pay tax on due to the increased value? If so, what is the percentage rate?  It is long term cap gain  however you will be able to exclude everything but the depreciation recapture which I hope you have been taking ... if you did not seek local professional assistance to file the return and correct the oversight.  Depreciation recapture is taxed at the same rate as wages however it is capped at no more than 25%. 

 

 

3) Assuming I do not owe any taxes, should I stop the real estate agent/title company from reporting the 1099-S or does that even matter as long as I can prove residency at time of filing?  Since it was a rental they MUST issue the 1099-S.

 

 

4) Lastly, the 1099-S asks if you used the property for business purposes. I marked yes due to rental, but should that matter if I am eligible for the 2 out of 5 exclusion?  Again you must mark it was a rental ... it is not an option. 

View solution in original post

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