1. What is Rental Property Sale Tax?

The IRS taxes the sale of rental properties through two components: capital gains tax on the profit and depreciation recapture tax at 25%. This calculator helps estimate your total tax liability when selling a rental property.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( Sale\ Price \) — Final sale price of the property
• \( Basis \) — Adjusted cost basis (purchase price plus improvements)
• \( Depreciation\ Recapture \) — Total depreciation taken during ownership
• \( Capital\ Gains\ Rate \) — Your long-term capital gains tax rate (typically 15-20%)

Explanation: The formula separates the taxable amount into capital gains (net profit) and depreciation recapture (taxed at a fixed 25% rate).

3. Importance of Tax Calculation

Details: Accurate tax estimation helps with financial planning, determining net proceeds, and evaluating whether a 1031 exchange might be beneficial to defer taxes.

4. Using the Calculator

Tips: Enter all values in USD. The capital gains rate should be your applicable long-term rate (usually 15% or 20%). Depreciation recapture is the total depreciation you've claimed over the ownership period.

5. Frequently Asked Questions (FAQ)

Q1: What's included in the adjusted cost basis?
A: Original purchase price plus capital improvements, minus any casualty losses or depreciation taken.

Q2: How is depreciation recapture calculated?
A: It's the total depreciation you've claimed over the years, regardless of actual property value changes.

Q3: Are there ways to reduce this tax?
A: Yes, through strategies like 1031 exchanges (deferral) or offsetting with capital losses.

Q4: What if I sold at a loss?
A: You may still owe depreciation recapture tax, but could potentially deduct the capital loss.

Q5: Does this apply to primary residences?
A: No, this is specifically for rental/investment properties. Primary residences have different tax rules.