Do I Owe Income Taxes When I Sell a Rental Property?
The answer is MAYBE. When a property owner sells a real estate investment, typically, income taxes are due. There are two exceptions. 1) If you lived in the rental house for two out of the last five years, you might not owe income taxes. 2) If you're doing a 1031 exchange and you plan to buy more investment property with your sales proceeds, you might not owe taxes (defer them). These two situations might save you thousands of dollars simply by structuring the transaction favorably. If you do owe capital gains taxes, you may also only owe at a lower "capital gains" rate.
* Seek advice from a tax professional.