Capital Gains Tax on Real Estate ?

[HogHunter34]

Just trying to get clarification

Looking at a prospective property from another investor. I always ask the question what’s motivating you to sell?
Seller’s agent response was the owner has hit the 2 year mark & is now ready to sell to avoid paying capital gains. This is a rental & not the owners primary residence

Correct me if I’m wrong but I thought the avoidance of capital gains tax after 2 year Mark only applies to your primary residence or you must have lived in the residence 2 years?

All rentals or secondary homes that the owner does not occupy has to pay capital gains tax. Short term if asset is held 1 yr or less & long term if asset held over 1 year.

Can someone validate this or correct me?
Thanks

[SB09]

Just trying to get clarification

Looking at a prospective property from another investor. I always ask the question what’s motivating you to sell?
Seller’s agent response was the owner has hit the 2 year mark & is now ready to sell to avoid paying capital gains. This is a rental & not the owners primary residence

Correct me if I’m wrong but I thought the avoidance of capital gains tax after 2 year Mark only applies to your primary residence or you must have lived in the residence 2 years?

All rentals or secondary homes that the owner does not occupy has to pay capital gains tax. Short term if asset is held 1 yr or less & long term if asset held over 1 year. If the seller is under the impression they're exempt from Capital gains just because they've held the property for over 2 years, I'd suggest they contact a CPA and get some advice.

Can someone validate this or correct me?
Thanks

You're absolutely correct on the primary vs. secondary/rental assessment. They won't be able to claim a secondary or rental property as exempt from capital gains just on that merit.

But there's multiple ways where, that come to my mind at the moment, the seller can take advantage of a safe haven for the capital gains...

- They could have got their adjusted basis in a spot where they technically don't owe any taxes. (Costs are equal to or more than the gain)

- They could enter into a 1031 exchange. (Tax deferment into another like type/value property.)

I'm sure there's more ways to get it done with a good/creative CPA. Those are just the couple obvious scenarios that come to mind.

[rvd]

You're absolutely correct on the primary vs. secondary/rental assessment. They won't be able to claim a secondary or rental property as exempt from capital gains just on that merit.

But there's multiple ways where, that come to my mind at the moment, the seller can take advantage of a safe haven for the capital gains...

- They could have got their adjusted basis in a spot where they technically don't owe any taxes. (Costs are equal to or more than the gain)

- They could enter into a 1031 exchange. (Tax deferment into another like type/value property.)

I'm sure there's more ways to get it done with a good/creative CPA. Those are just the couple obvious scenarios that come to mind.

I would guess it’s a 1031.

[Birddog66]

You are correct. It's possible the agent did not convey the proper information to you.

[HogHunter34]

Thanks. Yes I wondered too if 1031 exchange but that’s not relevant to the 2 year mark correct? Can that be done regardless of length of time asset is held?

[SB09]

Thanks. Yes I wondered too if 1031 exchange but that’s not relevant to the 2 year mark correct? Can that be done regardless of length of time asset is held?

There is in fact a "2-year holding" rule/not rule/IRS ruling that the time period is "sufficient" to them on a 1031 exchange. So this likely could be what the seller is talking about with the over 2 years of ownership target.

[HogHunter34]

There is in fact a "2-year holding" rule/not rule/IRS ruling that the time period is "sufficient" to them on a 1031 exchange. So this likely could be what the seller is talking about with the over 2 years of ownership target.

Ok thanks

[SB09]

Ok thanks

It's not a technical rule you're going to find. More or less an IRS judgement call to combat people endlessly flipping their money over to take advantage of the exchange.

[HogHunter34]

It's not a technical rule you're going to find. More or less an IRS judgement call to combat people endlessly flipping their money over to take advantage of the exchange.

I know they exist & what they are but all the finer knowns I’m not familiar with. Appreciate the feedback

[BrianL]

Property sold under 2 years is capital gain rate, property over two years can be recorded as regular income

[PYBUCK]

Capital gains tax under Trump was 24%, 20% for business. Under Sleepy Joe it will be 44%. Got to get that money from somewhere to give it to the freeloading liberals.

[Throwin Darts]

Considering the info is coming from the agent and not the actual seller I would bet they don’t have the story straight as to the tax situation