if you buy a rental property and own it for 2 years do you still pay capital gain tax on the sell after 2 year
if you buy a rental property and own it for 2 years do you still pay capital gain tax on the sell after 2 years? Or since it is a rental will you always pay capital gains tax no matter how long you own it? And the last question is if you do have to capital gain tax is it taxed at 15% or at your ordinary income tax bracket?
Rental property does not qualify for the 2 year exclusion for your personal residence unless you live in part of it. Then you can exclude the gain on the percentage of personal use. Otherwise, you pay tax on the entire gain. Your capital gains rate fluctuates depending on the amount of your income, but it will be capital gains, not ordinary income.
some can be capital gains, but there is depreciation recapture
Rental property is treated as a business; i.e., an activity you entered into for profit. Selling the home, no matter how long you’ve owned it, is the sale of a capital asset.
Own it for more than a year and you’ll be taxed at the long-term (more favorable) capital gains rate (5% or 15% depending on how much your other income totals). Sell with less than a year of ownership and you will be taxed at your normal or marginal income tax rate.
Good luck!