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Does selling rental properties require capital gain payment?

My father has owned his rental property for over four years, and he was wondering if he sells the rental house, does he have to pay captial gain even though he’s going to buy another rental property right away with the money he’s gained from the rental property he just sold?

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Answer #1

I’m sorry. I just realized you asked if your father WOULD have to pay now. The answer if NO. If he exchanges into a “like kind” property, his capital gains will be DEFERED and then defered again if he exchanges into another property in 5 or 10 yrs etc.

Answer #2

I think you have to pay capital gain tax at the end of the year…it depends in what state… if its not owner occupied you have to pay tax ..but if its owner occuppied you don’t have to…

Answer #3

Definately. He can do what’s called a 1031 Exchange also known as a Starker exchange. In some states the company that facilitates the exchange is called an accomodator. Here is the wikipedia explanation link: http://en.wikipedia.org/wiki/1031_exchange. Basically it will defer the capital gains until a later time when the amount of money owed will be relatively less (because of inflation).

Answer #4

Hi, Yes, even if he plans to buy another rental property, he will have to pay capital gain on the one he sells.

The loophole to capital gain is that you are allowed to sell a principal residence once every two years and exclude up to $250,000 ($500,000 for a married couple) of the gain on the sale.

Therefore, if your dad lives in the rental property as his principal residence for at least 2 years out of the 5 years before the sale, he doesn’t have to pay capital gain tax.

However, any gain in excess of the exclusion amount ($250,000 for him, $500,000 for a married couple) WILL be subject to taxation, and there is nothing you can do to get rid of that taxation.

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