Short and long term capital gains tax

[John Kerr]

Hello I am wondering if anyone knows anything about if I have to pay capital gains tax(short term or long term) if I sell any of my rental units. I have lived in 2 of them over a year and the third one for close to a year.(I have to check some records to figure out the last one). I was told I do not have to pay any capital gains tax if I've lived in them over a year. Then someone told me I would have to pay long term but not short term. Any info on this subject would be greatly appreciated. Thank you. John Kerr

[Jon Holdman]

Sorry, @John Kerr you've been seriously misinformed. If you live in a house TWO (not one) years of the five years prior to the sale you can use an exemption to avoid tax on $250K of gains, $500K for married filing joint. Those timelines are strict and are based on actual closing dates.

When you sell a rental you pay two taxes. One is capital gains. Short term if you've held it under a year, long term if held over a year. Unfortunately there's another tax you pay first. That's the tax on unrecaptured depreciation. As you take deprecation each year (or, are allowed to take it, even if you don't) the basis of your property decreases by the depreciation. When you sell, that increases your gains. The gain up to the total amount of depreciation taken or allowed (whichever is greater) is subject to this tax on unrecaptured deprecaition. That's currently capped at 25%.