Calculating Sale Of Rental Property

Capital Gain Formula:

\[ \text{Capital Gain} = \text{Sale Price} - (\text{Purchase Price} + \text{Improvements} - \text{Depreciation}) \]

Sale Price:

Purchase Price:

Improvements:

Depreciation:

Capital Gain:

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1. What is Capital Gain on Rental Property?

Capital gain is the profit realized from the sale of a rental property. It's calculated by subtracting the property's adjusted basis (purchase price plus improvements minus depreciation) from the sale price.

2. How Does the Calculator Work?

The calculator uses the capital gain formula:

\[ \text{Capital Gain} = \text{Sale Price} - (\text{Purchase Price} + \text{Improvements} - \text{Depreciation}) \]

Where:

Sale Price — Final selling price of the property
Purchase Price — Original purchase price
Improvements — Capital improvements made to the property
Depreciation — Total depreciation claimed during ownership

Explanation: The formula accounts for your investment in the property (purchase price), money spent improving it, and depreciation benefits claimed over time.

3. Importance of Calculating Capital Gain

Details: Accurate capital gain calculation is crucial for tax purposes, as it determines your taxable profit from the sale. It helps in planning for potential tax liabilities.

4. Using the Calculator

Tips: Enter all monetary values in dollars. Include all capital improvements (not routine maintenance) and total depreciation claimed. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What counts as an improvement?
A: Improvements are permanent additions that increase property value (e.g., new roof, room addition), not routine maintenance (e.g., painting, repairs).

Q2: How is depreciation calculated?
A: Residential rental property is depreciated over 27.5 years. Annual depreciation = (Purchase Price + Improvements - Land Value) / 27.5.

Q3: Are there tax exemptions for capital gains?
A: Primary residences may qualify for exemptions, but rental properties typically don't. You may qualify for a 1031 exchange to defer taxes.

Q4: What's the difference between short-term and long-term capital gains?
A: Properties held less than one year are short-term (taxed as ordinary income). Over one year is long-term (typically lower tax rates).

Q5: Can I deduct selling expenses?
A: Yes, selling costs (agent commissions, legal fees) can be deducted from the sale price before calculating gain, though they're not included in this basic calculator.