Thinking about selling your rental property? Be prepared for potential tax consequences! Here’s a concise breakdown:<\/p>\n\n\n\n
You may owe taxes on the profit (gain<\/a>) you make from selling your property. This applies whether you held the property short-term<\/strong> (less than 1 year) or long-term<\/strong> (1 year or more). “Material participation” and “passive activity” rules exist,\u00a0but typically don’t impact standard residential rentals. So let’s assume it is a normal sale, and not a casualty loss, theft or unusual event. Here are the two key points to remember: <\/p>\n\n\n\n With that in mind, let’s dig into the forms.<\/p>\n\n\n\n There are several forms that need to be involved in this transaction and they include:<\/p>\n\n\n\n All that said, the informational returns such as Form\u00a01099 B<\/a>, or\u00a01099 S<\/a>, usually for reporting a capital gain by the real estate reporting person.<\/p>\n\n\n\n Some of these forms may not be necessary depending upon the type of sale and the position the seller had in the property sold. With that said, we’ll keep it simple and focus on sales that are most common.<\/p>\n\n\n\n Let\u2019s look at the first subject in which you are selling rental property that you have a personal use stake involved. You need to report the gain on a sale or exchange of this type of property on Form 8949 and 1040 Schedule D<\/a>. Please note that losses on this type of sale are not deductible. Also if you had a loss and you received a 1099 S, report this on the 8949 and Schedule D even though it is not deductible.<\/p>\n\n\n\n Now let\u2019s look at the \u201cholding period\u201d in which you will determine whether you have a Long term or Short term capital gain. The period of time less than 1 year is considered \u201cshort term\u201d and any time after that is \u201clong term\u201d. Please note also that with Installment Sales<\/strong> the same applies if the payments are made within the current tax year then it is short term.<\/p>\n\n\n\n\n
IRS Forms for Business Property, Capital Gains and Assets<\/h3>\n\n\n\n
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Reporting Gains and Losses for Depreciable Residential Rental Property on Form 8949:<\/h3>\n\n\n\n