Author Topic: MILITARY and capital gains tax exclusion - selling a rental property  (Read 5835 times)

HawkeyeNFO

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Has military member held a rental property, then sold it after a few years, and used the 10-year suspension of the rule requiring that you live in the porperty for 2 of the 5 years prior to the sale, in order to avoid any capital gains tax on the sale? 

http://www.realestate.com/advice/tax-corner-military-capital-gains-exclusion-sale-to-related-parties-99917/

http://askjune.military.com/2013/08/home-sale-capital-gain-tax-exclusion-for-military-members.html

I'm looking at doing this, and I would love to hear about others' experiences.

Nords

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Re: MILITARY and capital gains tax exclusion - selling a rental property
« Reply #1 on: October 04, 2013, 02:33:53 PM »
Has military member held a rental property, then sold it after a few years, and used the 10-year suspension of the rule requiring that you live in the porperty for 2 of the 5 years prior to the sale, in order to avoid any capital gains tax on the sale? 
That would seem to work fine if it's the property that you'd claim as your primary residence when you're no longer subject to military PCSs. 

Are you indeed going to have cap gains, or can you raise the basis by the amount of money that you've put into the property over the years?  If you raise the basis and then lower the net sale amount then you may not have to worry about a cap gains exemption.  I'm still holding on to a piece of paper from 1989 to document a cap gains rollover on the sale of one property for the purchase of another home that we'll continue to own for many years, and I'm hoping the whole issue will be made moot by a probate.

Neither one of those links addresses the subject of depreciation recapture.  Whether you can exempt the cap gains or not, it would seem that you'd still be expected to depreciate the structure (which the IRS assumes you do when you rent it out) and then you'd owe depreciation recapture tax on that amount.

Finally, you might have better luck with this question on BiggerPockets.com.  When readers have asked me about their real estate, they're usually not blessed with capital gains...