Profile picture for jonemec

What are the penalties for selling a rental?

3 bedrooms, 1 bath and around 1000 sq. ft. with 1 car garage.  She is now living with my sister and we are not sure when to sell the house. We want to know what the penalties are for her selling it or estate sale.
  • March 15 2011 - Pasco
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Answers (6)

Best Answer

Profile picture for nwhome.us
@jonemec,
Are you saying that the home belongs to your mother and she has moved into your sister's home?
Are you asking about the restrictions on selling a home that is rented?
  • March 15 2011
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I think we need a few more details to help you with your question.  I take it your mother owned a home, moved in with your sister and rented out her home.

That's a little different from selling a home which was originally purchased as an investment property and put into service.  You would owe tax on the capital gain. It's not a simple calculation so seeking tax advice is the best thing to do.

A previous poster indicated the exemption of $250,000 on a personal residence. If it was your mothers primary residence that exemption should apply.  A tax professional can determine if the sale qualifies.

You mention "estate".  If you mother is ill and likely to need the services of a nursing home, it might be a good idea to get advice from an attorney who specializes in elder law and estate law now.

  • March 19 2011
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There is capital gains tax on profits when selling a rental.  Under current tax law, rha sale of a residence that you live in, is tax free up to $250,000 of profit for one person; up tp $500.000 for a married couple that own jointly.
  • March 17 2011
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Typically you can exclude capital gains on a principal residence, but that exclusion can go away when the property is turned into a rental property.

I'm not a tax professional (and I urge you to talk to one) but it appears that if the home was your mothers principal residence for two of the past five years, she wouldn't have to pay capital gains (although there are specific rules regarding not being able to depreciate the property for that two year period).

Your best bet is to either talk to a tax professional or call the IRS.

Here's the link to the specific part of the tax rules I've discussed. Please don't take this as tax advice as too little is known about your mothers situation and only a tax professional could give you the best answer.

http://www.irs.gov/publications/p523/ar02.html#en_US_2010_publink1000200763
  • March 15 2011
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Profile picture for jonemec
I am trying to find out the tax implications of selling rental property.  I am aware of rental agreements which that is not the problem nor is a mortgage as which there is none.  I am just trying to find if it is better to sell the house while she is alive or wait to sell the house as an estate.  It is valued less than $100,000.  Thanks.
  • March 15 2011
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I'm going to ignore the description and focus on the main question - but you'll need to look at the rental contract to see if anything is written in there about penalties for selling a rental (I'm going to assume there are none, it would be uncommon for a lessor to agree to a penalty for selling)...however, the new owner will have to honor any lease that is currently in place on the property...and that may make it more difficult to sell.
  • March 15 2011
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