The capital gains from the sale would fall within the small business income exclusion.
Gains or losses reported must be those that are generated in the ordinary course of business, from assets integral to the taxpayer’s business operation, or from working capital and reinvested into the business. Rental property itself is very much integral to the business of real estate rentals. Therefore the gain would qualify.
Gains or losses, from a partial or complete liquidation of a business, including, but not limited to, gain or loss from the sale or other disposition of goodwill should also be included as an exclusion.
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