Q: When selling a rental property but I haven't filed taxes in a few years will the IRS take that money
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A:
When you sell a rental property, you may be required to report the sale to the IRS and pay taxes on any capital gains. If you haven't filed taxes for the years you owned the rental property, you could face some complications:
1. The IRS may already be aware of your lack of filing and could have filed a substitute return on your behalf, which typically doesn't include deductions you might be entitled to.
2. When you sell the property, the sale will be reported to the IRS through a 1099-S form, alerting them to your gain on the sale.
3. If you owe back taxes, penalties, and interest from the years you didn't file, the IRS may place a lien on your property or seize the proceeds from the sale to cover your tax debt.
To minimize potential issues, consider taking these steps:
1. File your missing tax returns as soon as possible, reporting your rental income and expenses for each year.
2. Work with a tax professional to calculate your capital gain on the sale of the rental property and determine your tax liability.
3. If you owe back taxes, contact the IRS to set up a payment plan or discuss other options.
By being proactive and addressing your unfiled taxes, you can reduce the risk of the IRS seizing the proceeds from the sale of your rental property. However, if you owe a significant amount in back taxes, the IRS may still have a claim on the money from the sale.
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