What will I be taxed on the sale of property?

I sold my rental property in 2006 and made $120,000 profit from the sale. Since I have
never lived there am I eligible to exclude up to $250,000 of the gain on the sale of the property? If not, I assume and understand my profit will be taxed (capital gain). Am I right? What kind of tax forms do I need? I have been unsuccessful in locating clear answers to my questions. Please help. Thank you.

Hi flyboeing,

I asked my Dad if he knew anything about this. From what I understand, any tax breaks or taxes that you are eligible for will be applied whether you lived in the property you sold or not.

And your profits will be taxed.

Hope that helps.

FlyBoeing:

If you did not use theproperty as a primary residence, you cannot get the benefits of protecting the gain of up to $250,000.

You would get taxed on thecapital gain. However, be careful here. The IRS taxes the gain you realized on the sale at the capital gains tax rate. However, the gain you realized is not necessarily the difference between what you sold it for and what you paid for it. It is the difference between your tax basis and the amount you sold it for.

Your tax basis is the original price, plus allowable capital costs you incurred (I.e. money spent to replace a roof or make major structural replacements) minus the amount of allowed depreciation under the tax code (evenif you never actually took any depreciation).

As for how you report it and on what forms, that would depend upon whether you owned the builidng as a sole proprietorship or some corporate form.

Additionally, depending on how long you held the building and the circumstances, there could be recapture rules that apply.

This is really something that you should seek the advice of a good tax accountant on as it can be tricky and you want to make sure it is done right. You don't want the IRS coming after you!

Hope this helps.

use a 1031 exchange and you can defer the taxes with another property