Touchpoint PM are not accountants or attorneys. Therefore you should seek professional advice in these matters.

Capital gains on non-owner-occupied rental properties work like this: When you sell such a property for more than what you paid for it, the profit you make is considered a capital gain. This gain is typically subject to capital gains tax, which is a tax on the increase in value of your investment.

To calculate the capital gain, you subtract the property's purchase price (plus any acquisition costs) from the selling price (minus any selling expenses). The resulting amount is your capital gain. Depending on how long you held the property before selling it, the capital gains tax rate can vary. Assets held for longer periods often qualify for lower tax rates through long-term capital gains treatment.

However, certain factors can affect the taxation of capital gains on rental properties, such as depreciation claimed during ownership, improvements made to the property, and whether it was used for business purposes. It's crucial to consult with a tax professional or accountant to ensure you're accurately reporting and minimizing your tax liabilities.

Exemptions:

You can be exempt from paying capital gains tax on the sale of a house under certain conditions:

1. Primary Residence Exclusion: If the property was your primary residence for at least two out of the past five years before selling it, you may qualify for the Primary Residence Exclusion. This exclusion allows individuals to exclude up to $250,000 ($500,000 for married couples filing jointly) of capital gains from the sale of their primary home.
2. 1031 Exchange: Another option to defer capital gains tax is through a 1031 Exchange. This allows you to reinvest the proceeds from the sale of one investment property into another similar property without recognizing the capital gains. However, specific rules and timelines must be followed for this exchange to qualify for tax deferral.
3. Involuntary Conversion: If your property was involuntarily converted (e.g., destroyed in a natural disaster) and you reinvest the proceeds in a similar property within a certain timeframe, you may be able to defer capital gains tax on the sale.
4. Special Circumstances: There are other special circumstances, such as certain qualified small business stock sales or military service-related exemptions, that may exempt or reduce capital gains tax liability. These often have specific criteria and eligibility requirements.

It's essential to consult with a tax advisor or accountant to understand your specific situation and eligibility for any capital gains tax exemptions or deferrals. They can provide personalized advice based on your financial circumstances and the applicable tax laws.

1031 Exchange

A 1031 exchange allows you to defer capital gains taxes when selling a rental property by reinvesting the proceeds into another like-kind property. This process can help you defer taxes and potentially grow your investment portfolio.