How much tax will I owe when I sell my rental property?
Updated: Aug 30
When you sell your rental property, you will be taxed on any capital gains from the sale.
Capital gains for this questions include the allowable depreciation during rental operations added to the difference between the sale proceeds and the purchase price of the rental and its improvements.
2015: purchase rental for $150,000 + closing costs of $10,000 + new roof $30,000
(for this example, total asset value is $190,000 placed into service on January 1st)
2015 - 2022: $190k / 27.5 years depreciation recovery * 8 years depreciation deduction
($55,000 total depreciation rounded)
2022: sell rental for $300,000 - closing costs of $15,000 (sale proceeds $285,000)
2022: gain = sale proceeds $285k - total purchase $190k + depreciation $55k = $150k
Depending on the amount of your capital gains and your other reported income, the capital gains will be taxed at either 0%, 15%, or 20% by the IRS. Most states, however, do not have a separate tax rate for capital gains.
When you sell your rental property for a loss, assuming that you have operated the rental property as a business, you can deduct the loss against your other income and not be limited to the $3,000 per year capital loss limit.