Capital Gains On Rental Property Sale Calculator

Capital Gains Tax Formula:

\[ Tax = (Sale\ Price - Basis - Depreciation\ Recapture) \times Capital\ Gains\ Rate + Depreciation\ Recapture \times 25\% \]

Sale Price:

USD

Adjusted Cost Basis:

USD

Depreciation Recapture:

USD

Capital Gains Rate:

Capital Gains Tax:

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1. What is Capital Gains Tax on Rental Property?

When you sell a rental property, you may owe capital gains tax on the profit. This tax has two components: long-term capital gains tax on the appreciation and depreciation recapture tax at 25% on the depreciation you've claimed.

2. How Does the Calculator Work?

The calculator uses the following formula:

\[ Tax = (Sale\ Price - Basis - Depreciation\ Recapture) \times Capital\ Gains\ Rate + Depreciation\ Recapture \times 25\% \]

Where:

$ Sale\ Price $ — The amount you sold the property for
$ Basis $ — Your adjusted cost basis in the property
$ Depreciation\ Recapture $ — Total depreciation claimed during ownership
$ Capital\ Gains\ Rate $ — Your long-term capital gains tax rate (typically 15-20%)

Explanation: The equation separates the tax calculation into two parts - the appreciation portion taxed at capital gains rates and the depreciation recapture taxed at 25%.

3. Importance of Accurate Calculation

Details: Properly calculating your tax liability helps with tax planning, setting appropriate sale prices, and avoiding surprises at tax time. Depreciation recapture can significantly impact your total tax.

4. Using the Calculator

Tips: Enter all values in USD. Your adjusted basis should include original purchase price plus improvements, minus land value. Depreciation recapture is the total depreciation you've claimed over the years.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between capital gains and depreciation recapture?
A: Capital gains tax applies to the property's appreciation, while depreciation recapture taxes the deductions you took for wear and tear.

Q2: Can I avoid depreciation recapture tax?
A: Only through a 1031 exchange where you reinvest proceeds into another investment property.

Q3: How do I determine my adjusted cost basis?
A: Start with purchase price, add improvements, subtract land value and any casualty losses.

Q4: Are there any exemptions like with primary residences?
A: No, rental properties don't qualify for the $250k/$500k primary residence exclusion.

Q5: What if I sold at a loss?
A: You may be able to deduct the loss against other income, but depreciation recapture still applies.