-- Answers to Questions About Real Estate Law
Money and real estate news you can use everyday

Real Estate Lawyer
Question of the Week
Tip of the Week
Recommended Books
Contact Sam

Capital Gains On Rental Property


By Ilyce R. Glink and Samuel J. Tamkin

Summary: Sam explains that a homeowner, upon the sale of there home, will have to pay taxes on the gain and, in addition, may have to pay taxes on any depreciation taken on the property over the years. They may use a 1031 exchange to avoid taxes on their investment property.

Q: You received a letter from some folks who had lived in their primary residence from 1980 to 1994 and then converted it to a rental. They wanted to know if they could avoid paying capital gains tax on its sale if they let their son live in the rental rent free for two years.

Your reply was no, and you wrote that even if the owners moved back into the home, they might still owe some taxes on the gain from the years in which the house was a rental property.
(article continues below useful links)

Could you please clarify that? And also, what happens to the depreciation that was taken while the house was being rented? Don't they have to account for that?

A. You are correct that the homeowner upon the sale of the home will have to pay taxes on the gain and, in addition, may have to pay taxes on any depreciation taken on the property over the years.

The only way to defer the payment of any of these taxes is for the homeowner to sell this investment property and purchase another one in a like-kind exchange, also known as a “Starker exchange” or a “1031 exchange.”

In this like-kind exchange the seller sells his first property and generally buys a second investment property of equal or greater value with financing that is less than or equal to the financing in place on the place being sold. Through this exchange, the seller “transfers” his tax situation from the first property to the second.

This doesn’t eliminate any taxes owed, it just defers them until this new property is sold.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website




RSS Feeds

RSS 0.91 Feed
RSS 1.0 Feed
RSS 2.0 Feed

Home Buying   Using Attorneys to Buy a Home - Earnest Money - Quitclaim Deeds - Easements - Seller Misreprensation - New Construction - Buying with Partners - Home Inspections - Seller Problems - Agent Issues
Home Selling    Using Attorneys to Sell a Home - Seller Disclosure laws - Title Problems - Buyer Problems - Real Estate Agent Issues - Tax Considerations
Home Ownership   Neighbor Problems - Seller Misrepresentation And Fraud Issues - Problems In a Condominium Development - Problems Around The House - New Construction Issues - Subdividing Land
Home Renovation   Architect Issues - Contractor Issues - Problems With Contractors - Inspection Issues - Certificate Of Occupancy - Municipal Inspections - Punch List Issues - Financing Issues - Installment Contracts
Real Estate  
Loan Application Problems - Refinancing Issues - Paying Off An Old Loan - Credit Problems - Seller Recommended Lender - Prepaying A Loan - Prepayment Penalties - Predatory Lenders
1031 Exchanges - Financing Investment Properties - Landlord and Tenant Issues - Partnership and Company Considerations - Tax Considerations - Subdividing Land
Contact Us | Sitemap | Terms of Use | Copyright ©2001-2005. ThinkGlink Inc. All rights reserved.
Reproduction of material from any pages without written permission is strictly prohibited.
Site design by Walker Sands Communications