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If you are engaged in the rental real estate business, you might one day decide to sell that rental property. The sale of rental real estate carries special rules and provisions that often differ from the sale of other property.
The sale of real estate (Section 1250 property) that is used in a trade or business and held for more than one year can qualify for certain preferential tax treatment under Section 1231. Gains are treated as longterm capital gains, while losses are treated as ordinary losses. Although the Section 1231 gains are characterized as longterm capital gains, consideration must also be given to unrecaptured Section 1250 depreciation.
In this video, I cover three examples of how to report the sale of residential real estate on IRS Form 4797.
1. The sale of property held longterm for a gain
2. The sale of property held longterm for a loss
3. The sale of property held shortterm for a gain
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