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If I own a rental property, what kind of taxes may I be liable to pay?

If you have gains, it is most probable that you will be required to pay a tax on the gain at the Federal and State levels. It is surprising to me how many small investors are unaware that they may have to pay a State Tax on any gain they have from the sale of rental property as well as a Federal Tax. Also you will be required to recapture any depreciation that you have accumulated since you began depreciating the property. This may mean paying a tax on the depreciation you recapture at both the Federal and State levels as well. I am surprised how many small investors that own rental property are completely unaware of the depreciation recapture rules. Depreciation recapture tax rates are different than long tern capital gains tax rates. One of the potential ways to defer paying these taxes is to qualify for a 1031 Exchange. If you would like to estimate the taxes you may have to pay on a sale of a rental property then try this calculator, "SALE OF REAL ESTATE RENTAL PROPERTY". Or if you own a property that is part rental / part non rental property try " SALE OF REAL ESTATE PART RENTAL/PART NON RENTAL PROPERTY". You may also be required to pay a transfer tax in your state. These calculators do not consider transfer taxes.

Can I buy real estate with an IRA?

Section 408 of the Internal Revenue Code permits individuals to buy real estate in an I.R.A.  In order to buy property through an I.R.A. you will have to find a custodian that can handle the transaction and the regulations involved with setting it up.  Keep in mind that you can not use real estate held in an I.R.A. as a primary residence, vacation home or as a business base.  All expenses including any repairs, insurance and taxes must be paid for from funds held by the I.R.A, hence you will need to project sufficient funds held in the account to pay for such expected or unexpected expenses.  If you have losses, you will not be able to take those losses as deductions on your tax return as you normally might have had you held the property outside of an I.R.A.   Because of the above considerations most often only an I.R.A. with funds in excess of several hundred thousand dollars can possibly be considered for a direct investment in real estate.  An alternative investment in real estate would be a REIT or real estate investment trust.

If I sell my primary residence, what kind of taxes will I be liable to pay?

In summary the IRS allows an exclusion of up to $250,000 for single individuals and $500,000 for married couples filing jointly on the sale of a principle residence.  The exclusion can usually be claimed only once every two years.  In order to qualify you must have owned and lived in the residence (as your primary residence) for two of the last five years before the sale. The ownership and use periods need not be concurrent and can consist of 24 months or 730 days.

For homeowners that are not married the exclusion of up to $250,000 each would apply as long as both individuals meet the qualifying exclusion requirements.

The tax law provides for an exemption of the two year rules for use and ownership, when the primary reason for the sale is health, change in place of employment, or “unforeseen circumstance” as defined or determined by IRS regulation.

This information comes from the website and can be found under,,id=105042,00.html titled, “IRS Issues Home Sales Exclusions”.

You may also be required to pay a transfer tax in your state.

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