Solved: Will we have to pay Capital Gains Tax if we sell our Rental and use that to pay off 2nd Mortgage on our primary residence?
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Will we have to pay Capital Gains Tax if we sell our Rental and use that to pay off 2nd Mortgage on our primary residence?

 
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Level 15

Will we have to pay Capital Gains Tax if we sell our Rental and use that to pay off 2nd Mortgage on our primary residence?

What you use the proceeds from the sale for is irrelevant. If it's a taxable gain, you pay taxes on it no matter what.
If that rental was your *primary* residence for at least two of the last 5 years you owned it, then up to $250K if filing single and $500K if filing joint and both tax filers lived in the property for two of the last 5 years, will be exempt from the capital gains tax.
Pay attention to the screens as you work this sale through the rental section. The small print matters, and take what it tells you "literally". If you "read between the lines", you're guaranteed to mess up.

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.
Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2015". Select it. After you select the "I sold or otherwise disposed of this property in 2015" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report it's disposition (in your case, all your rental assets were sold).
Understand that if more than the property itself is listed in your assets list, then you need to allocate our sales price across all of your assets.  You will only allocate the structure sales price, you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise if you sold at a loss then you must show a loss on all assets, even if that loss is $1
Basically when working through an asset you select the option for "I stopped using this asset in 2015" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.
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Level 15

Will we have to pay Capital Gains Tax if we sell our Rental and use that to pay off 2nd Mortgage on our primary residence?

What you use the proceeds from the sale for is irrelevant. If it's a taxable gain, you pay taxes on it no matter what.
If that rental was your *primary* residence for at least two of the last 5 years you owned it, then up to $250K if filing single and $500K if filing joint and both tax filers lived in the property for two of the last 5 years, will be exempt from the capital gains tax.
Pay attention to the screens as you work this sale through the rental section. The small print matters, and take what it tells you "literally". If you "read between the lines", you're guaranteed to mess up.

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.
Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2015". Select it. After you select the "I sold or otherwise disposed of this property in 2015" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report it's disposition (in your case, all your rental assets were sold).
Understand that if more than the property itself is listed in your assets list, then you need to allocate our sales price across all of your assets.  You will only allocate the structure sales price, you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise if you sold at a loss then you must show a loss on all assets, even if that loss is $1
Basically when working through an asset you select the option for "I stopped using this asset in 2015" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.
?

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