There is a lot to know about investment property and the tax code in Minneapolis, MN. When you rent out a property that was once the home you lived in, your tax exposure changes. Your property becomes subject to different tax advantages and liabilities than when you were an owner-occupant.
Capital Gains Exclusion
IRS Section 121, otherwise known as the capital gains exclusion, is one area of the tax code that has particular importance to owners of rental property. The IRS will be interested in any major capital gains that you experience on your rental home. In order to get the exclusion that’s available in Section 121, you need to demonstrate that you lived in the property and it was your primary residence for two years out of five. That means that when you rent the property out for a year or two after you lived there, you’ll be able to qualify for this exclusion. However, if it’s rented out for a longer term and you have not lived there for two years out of five, the exclusion will not benefit you and you cannot claim it on your taxes.
Professional Tax Help
Property managers can help you understand your tax benefits and liabilities, but we are not tax experts or CPAs. It’s always a good idea to seek professional advice when you’re filing your taxes and determining how your investment property fits into your overall picture of annual income and expenses. The capital gains exclusion can be tricky if you aren’t completely comfortable with the tax code, so it will benefit you to get some great advice from a tax attorney or a professional tax advisor. You’ll need to discuss whether or not you qualify for this exclusion and how to prove it.
If you recently lived in the property that is now rented out to tenants, there’s a good chance you can qualify for the capital gains exclusion. Contact Residential Property Management, Inc. if you have any questions or you need a referral to an excellent tax professional.