Capital gains tax when I sell my home if I use a portion of it for an AirBnB
Getting the first year right for any rental property is key. It is even more complex when you rent a room, or rent via a service like AirBnB. Get professional tax advice. For you the IRS rules are covered in Tax Topic 415 Renting Residential and Vacation Property and IRS pub 527 Residential Rental Property There is a special rule if you use a dwelling unit as a personal   residence and rent it for fewer than 15 days. In this case, do not   report any of the rental income and do not deduct any expenses as   rental expenses. If you reach that reporting threshold the IRS will now expect you to to have to report the income, and address the items such as depreciation. When you go to sell the house you will again have to address depreciation. All of this adds complexity to your tax situation. The best advice is to make sure that in a tax year you don't cross that threshold. When you have a house that is part personal residence, and part rental property some parts of the tax code become complex. You will have to divide all the expenses (mortgage, property tax, insurance) and split it between the two uses. You will also have to take that rental portion of the property and depreciation it. You will need to determine the value of the property before the split and then determine the value of the rental portion at the time of the split. From then on, you will follow the IRS regulations for depreciation of the rental portion until you either convert it back to non-rental or sell the property.  When the property is sold the portion of the sales price will be associated with the rental property, and you will need to determine if the rental property is sold for a profit or a loss. You will also have to recapture the depreciation. It is possible that one portion of the property could show a loss, and the other part of the property a gain depending on house prices over the decades. You can expect that AirBnB will collect tax info and send it to the IRS As a US company, we’re required by US law to collect taxpayer   information from hosts who appear to have US-sourced income. Virginia will piggyback onto the IRS rules. Local law must be researched because they may limit what type of rentals are allowed. Local law could be state, or county/city/town. Even zoning regulations could apply. Also check any documents from your Home Owners Association, they may address running a business or renting a property.  You may need to adjust your insurance policy regarding having tenants. You may also want to look at insurance to protect you if a renter is injured.
"A mutual fund could make two different kinds of distributions to you: Capital gains: When the fund liquidates positions that it holds, it may realize a gain if it sells the assets for a greater price than the fund purchased them for. As an example, for an index fund, assets may get liquidated if the underlying index changes in composition, thus requiring the manager to sell some stocks and purchase others. Mutual funds are required to distribute most of their income that they generate in this way back to its shareholders; many often do this near the end of the calendar year.  When you receive the distribution, the gains will be categorized as either short-term (the asset was held for less than one year) or long-term (vice versa). Based upon the holding period, the gain is taxed differently. Currently in the United States, long-term capital gains are only taxed at 15%, regardless of your income tax bracket (you only pay the capital gains tax, not the income tax). Short-term capital gains are treated as ordinary income, so you will pay your (probably higher) tax rate on any cash that you are given by your mutual fund. You may also be subject to capital gains taxes when you decide to sell your holdings in the fund. Any profit that you made based on the difference between your purchase and sale price is treated as a capital gain. Based upon the period of time that you held the mutual fund shares, it is categorized as a short- or long-term gain and is taxed accordingly in the tax year that you sell the shares. Dividends: Many companies pay dividends to their stockholders as a way of returning a portion of their profits to their collective owners. When you invest in a mutual fund that owns dividend-paying stocks, the fund is the ""owner"" that receives the dividend payments. As with capital gains, mutual funds will redistribute these dividends to you periodically, often quarterly or annually. The main difference with dividends is that they are always taxed as ordinary income, no matter how long you (or the fund) have held the asset. I'm not aware of Texas state tax laws, so I can't comment on your other question." "A nondividend distribution is typically a return of capital; in other words, you're getting money back that you've contributed previously (and thus would have been taxed upon in previous years when those funds were first remunerated to you). Nondividend distributions are nontaxable, so they do not represent income from capital gains, but do effect your cost basis when determining the capital gain/loss once that capital gain/loss is realized. As an example, publicly-traded real estate investment trusts (REITs) generally distribute a return of capital back to shareholders throughout the year as a nondividend distribution. This is a return of a portion of the shareholder's original capital investment, not a share of the REITs profits, so it is simply getting a portion of your original investment back, and thus, is not income being received (I like to refer to it as ""new income"" to differentiate). However, the return of capital does change the cost basis of the original investment, so if one were to then sell the shares of the REIT (in this example), the basis of the original investment has to be adjusted by the nondividend distributions received over the course of ownership (in other words, the cost basis will be reduced when the shares are sold). I'm wondering if the OP could give us some additional information about his/her S-Corp. What type of business is it? In the course of its business and trade activity, does it buy and sell securities (stocks, etc.)? Does it sell assets or business property? Does it own interests in other corporations or partnerships (sales of those interests are one form of capital gain). Long-term capital gains are taxed at rates lower than ordinary income, but the IRS has very specific rules as to what constitutes a capital gain (loss). I hate to answer a question with a question, but we need a little more information before we can weigh-in on whether you have actual capital gains or losses in the course of your S-Corporation trade." "Document how you came to have the stuff in the first place. First to defend against potential government inquiry; and second to establish that you held the asset more than one year, so you qualify for long-term capital gains rate.  I wouldn't sell it privately all at once, if you can avoid it.   If you can prove you held it more than a year,  you should pay the long-term capital gains tax rate, which is fairly low.  You'll keep most of it.  A huge windfall often goes very badly. People don't change their financial habits, burn through their winnings shockingly fast, overspend it, and wind up deep in debt.  At the end of the crazy train, their lives end up worse.   That wasn't your question, but you'll do better if you're on guard for that, with good planning and a desire to invest it in things which give you deferred income in the future. That's the cooler thing, when your investments mean you don't have to go to work! I don't mean donate ALL of it to charity. But feel free.  If you hold a security more than one year, and donate it to charity, you get a tax deduction for the appreciated value (even though the security didn't actually cost you that). (link) Do not convert the BTC to cash then donate the cash. Donate it as BTC.  Your tax deduction works against your highest tax bracket.  If you are paying in a 28% tax bracket (your next $100 of income has $28 tax), then for every $100 of charitable donation, you get $28 back on Federal. It does the same to state tax, and you also avoid the 10-15% capital gains tax because you didn't sell the securities.  Do your 1040 both ways and note the difference.***** Your charitable deduction of appreciated securities is capped at 30% of AGI.  Any excess will carryover and becomes a tax deduction for the next year, and it can carryover for several years. **  Use a donor-advised fund. If you have are donating more than $5000, you don't need to search for a charity that will take Bitcoin, and you also don't need to pick a charity now.  Instead, open a special type of giving account called a Donor-Advised Fund.  The DAF, itself, is a charity. It specializes in accepting complex donations and liquidating them into cash.  The cash credits to your giving account.  You take the tax deduction in the year you give to the DAF.  Then, when you want to give to a charity, you tell the DAF to donate on your behalf***.   You can tell them to give on your behalf anonymously, or merely conceal your address so you don't get the endless charity junk mail.   The DAF lets you hold the money in index funds, so your ""charity nest egg"" can grow with the market.  Mine has more than doubled thanks to the market.  This money is no longer yours at this point; you can't give it back to yourself, only to licensed charities. The Fidelity Donor Advised Fund makes a big thing of taking Bitcoin, and I really like them. **** I love my DAF, and it has been a charitable-giving workhorse.  It turns you into a philanthropist, and that changes you life in ways I cannot describe. Certainly makes me more level-headed about money.   Lottery winner syndrome is just not a risk for me (partly because I'm now on the board of charities, and oversee an endowment.)  Donating generally will reduce suspicion (criminals don't do that), but donating to a DAF even moreso.  Since the DAF would have to return ill-gotten gains, they're involved.  Their lawyers will back you up.  The prosecutor is up against a billion dollar corporation instead of just you.  With Fidelity particularly, Bitcoin is a crusade for them, and their lawyers know how to defend Bitcoin.  A Fidelity DAF is a good play for that reason alone IMO.  ** The gory details: Presumably you are donating to regular charities or a Donor Advised Fund, and these are ""50% limit organizations"". Since it's capital gains, you have a 30% limit. If your donation is more than 30% of AGI, or if you have carryover from last year, you use Worksheet 2 in Publication 526. You plug your donations into line 4, then the worksheet grinds through all the math and shows what part you deduct this year and what part you carryover to the next year.  *** I specifically asked managers at two DAFs whether they were OK with someone donating a complex asset to the DAF, and immediately giving the entire cash amount to a charity.  The DAF doesn't get any fees if you do that.  They said not only are they OK with it, most of their donors do exactly that and most DAF accounts are empty.  They make it on the 0.6% a year custodial fee on the other accounts, and charitable giving to them.    Mind you, you can only donate to 501C3 type charities, what IRS calls ""50% limit organizations"".  This actually protects you from donating to organizations who lie about their status.  **** I'm not with Fidelity, but I am a satisfied DAF customer.  The DAF funds its overhead by deducting 0.6% per year from your giving account. If you invest the funds in a mutual fund within the DAF, that investment pays the 0.08% to 1.5% expense ratio of the fund.   I can live with that.  ***** I just Excel'd the value of donating $100 of appreciated security instead of taking it as capital gains income.  28% Fed tax, 15% Fed cap gains, 8% state tax on both.  Take the $100 as income, pay $23 in cap gains tax.  Donate $100 in securities, the $23 tax goes away since you didn't sell it. Really.  The $100 charitable deduction offsets $100 in income, also saving you $36 in regular income tax.  Net tax savings $59.  However you lost the $100!  So you are net $41 poorer.  It costs you $41 to donate $100 to charity.  This gets better in higher brackets." The $50k is subject to the appropriate income taxes, which may include FICA taxes including the employer share if you are self employed. The after tax money can then be invested with the amount invested being the cost basis (I.e., if you invest $40k you will have a cost basis of $40k).  In future years you will have taxes due if any of those investments pay dividends (or capital gain distributions). Once you sell you will have a capital gain or loss that you will pay taxes on (or take a deduction if a loss). Now you can improve this picture if you are able to put some of your money into a retirement account (either a tax deductible or a ROTH). With retirement accounts you do not pay tax on the capital gains or dividends. If you use a tax deferred account your tax is higher but that is because you were also investing Uncle Sam's portion of your pay check. It would depend on whether it's considered capital gains or not. A brief Google search suggests that it is; this means you're only required to pay tax on it once it's traded for actual currency, goods, or services. It also means you get some nice tax advantages as long as you hold it for longer than a year. That may become complicated depending on the State laws. In some States (California for example), LLCs are taxed on gross receipts, so you'll be paying taxes on paying money to yourself. In other States this would be a no-op since the LLC is disregarded. So you need to check your State law. I assume the LLC is not taxed as a corporation since that would be really stupid of course, but if it is then it adds the complexity of the Federal taxes on top as well (corporate entity will pay taxes on your rent, and you'll pay taxes on your dividends to get the money back). The best option would be to take that property out of the LLC (since there's no point in it anyway, if you're the tenant). There is no way you can directly defer that capital gains tax. If you sell a property that is not your principal residence, it will be taxed in the year in which it was sold. It doesn't matter what you do with the proceeds - that tax will get paid. Now, if you had adequate RRSP contribution room you could certainly put some money there, and would get a deduction on your tax return that would offset this capital gains tax. For example, if you sold a property for $300K that was originally purchased for $200K, then you would incur capital gains tax of $50K (assuming you were not claiming CCA deductions). If you took $50K of your proceeds and put it in an RRSP, it would offset the tax you pay now, and essentially defer the tax on that $50K of income until you withdraw - hopefully at a lower marginal tax rate. A spousal RRSP would work the same, except it would be taxed at your spouse's marginal tax rate when withdrawn. Either way, you need to have sufficient contribution room in the RRSP for this to work. Check your Notice of Assessment to see how much room you have available. Where I am you pay annual taxes on a house, pay state and county transfer taxes when you buy/sell, and then have to pay capital gains the year you sell if it appreciated and you don't meet one of the exemptions. So I think your whole premise may be flawed.