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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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i purchased a home in 1991 and lived in it for 7 years. my

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i purchased a home in 1991 and lived in it for 7 years. my parents lost their home and lived with me for 18 months. i then purchased a second home, a year later i married, and then began charging my parents some rent to be able to make it through the declining economy. i rented it to my parents for about 10 years. i recently sold the house i was renting to my parents. the whole time i never really made a profit. in fact at times, it was costing me money to carry this thing out. do i have to pay capital gains for this sale or can i put the money into my main home's mortgage to lessen my monthly payments.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
Hello cjw,

Yes, you will have to pay capital gains tax on the sale, unless you invest the money in to another like-kind investment property.

When you sell a home that can be classified as your primary residence, you are allowed to exclude $250,000 (or $500,000 if married filing a joint return) from the gain before any taxes are due. But since this home you rented to your parents does not qualify as your primary home, no exclusion can be applied.

When you sell investment property, capital gains tax becomes due in the year of the sale on any gain you have. The only way to defer the gain is by participating in what is called a 1031 Exchange, where you reinvest the proceeds in to another investment property.

So if you were to do this and use the money to purchase another rental property then you could defer the tax on the sale. But the deferral would not apply simply by using the money to put back in to the mortgage you have on your current residence.

I am sorry I could not give you more options on this, but under current regulations, the only option to defer taxes on the sale of a rental property is by participating in a 1031 Exchange.

If this was helpful please press the Accept button.

Thank you cjw and let me know if you have more questions. I am happy to help you with whatever I can.
Customer: replied 5 years ago.
when i accept this answer, how much is this going to cost me? is my 15$ deposit going to pay for this answer in full?
Expert:  Merlo replied 5 years ago.
Hello again cjw,

Yes, your deposit of $15 covers all that you owe. You have already paid a $15 deposit, and that is all that is required. Accepting the answer just gives credit to the person who answered it. Once you accept the answer, it may ask you if you wish to make an addtional deposit, and you should simply not take that option unless you have other questions you would like to post.

Please let me know if there is any additional information I can give you on this. I am happy to help you with whatever I can.

Thanks again cjw
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 3 other Tax Specialists are ready to help you

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