They had paid the proper sales tax and had no idea they had to pay income tax as well.The short answer to your question, @Coleen Mathis, is that California has no idea what your profit is, but isn't willing to take a chance that you'll intentionally or unintentionally forget to file a California non resident return (like the clients I mentioned above).  

You'll never pay that tax as long as you own the replacement property or continue to do exchanges into your new property. 

I will call tomorrow to find out how that jurisdiction calculated the tax, as Ryan suggests, and then see if my numbers still work using the new purchase price.

Unlike passive rental income, the income from an active trade or business is subject to self employment tax (a nasty 15% tax commonly referred to a "social security and medicare" by working folks).

Unlike passive rental income, the income from an active trade or business is subject to self employment tax (a nasty 15% tax commonly referred to a “social security and medicare” by working folks).

Chris Mason, the primary adviser for a client's decision to put all their assets into an LLC is their attorney, not their CPA, and if my client, based on recommendations from his or her attorney, decides to structure his or her business in a certain way, I'm going to prepare their tax returns consistently with the tax code and in such a way that reflects the legal reality of their situation, not what a lender or any other service provider wants me to do.That being said, I think it would be wise for attorneys to understand the tax as well as lending ramifications of structuring a client's business in a certain way and should definitely connect with their client's CPA and lender before making recommendations.

I bought Turbo tax as I hardly have any activity.

your Make ready will be far more than you state.. if its HUD for sure.Also be sure to check TAX's Memphis had dual tax   a city tax and a county tax if you buy out of the city your tax's are lower.

Therefore, by holding the property directly, you will not be liable for Texas Margin tax.  As

Anyway, if you lived in the converted garage, you could still sell your house whenever (as long as 2 of the last 5 years before you sell were owner-occupied) and avoid capital gains tax as Jay described, but you'd also be taking advantage of the appreciation that will most likely occur in that area.