1. What is Rental Property Sale Tax?

The tax on rental property sales consists of two components: capital gains tax on the profit and depreciation recapture tax at a fixed 25% rate. This calculator helps estimate your total tax liability when selling a rental property.

2. How Does the Calculator Work?

The calculator uses the rental property sale tax formula:

Where:

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

Explanation: The first part calculates capital gains tax on the profit after accounting for basis and depreciation, while the second part calculates the mandatory 25% tax on depreciation recapture.

3. Importance of Tax Calculation

Details: Accurate tax estimation is crucial for financial planning when selling rental properties, as tax liabilities can significantly impact your net proceeds from the sale.

4. Using the Calculator

Tips: Enter all values in USD. The capital gains rate should be your applicable long-term capital gains tax rate (typically 15% or 20% depending on your income). Depreciation recapture is the total depreciation you've claimed on the property over the years.

5. Frequently Asked Questions (FAQ)

Q1: What is depreciation recapture?
A: When you sell a rental property, the IRS "recaptures" the depreciation you've claimed at a fixed 25% rate, regardless of your income tax bracket.

Q2: How do I determine my adjusted cost basis?
A: Basis starts with the original purchase price plus closing costs and capital improvements, minus the value of the land (which isn't depreciable).

Q3: Are there ways to avoid this tax?
A: A 1031 exchange allows deferring taxes by reinvesting in another property, but doesn't eliminate the eventual tax liability.

Q4: Does this apply to primary residences?
A: No, this calculator is for rental/investment properties. Primary residences have different tax rules with capital gains exclusions.

Q5: What if I sold at a loss?
A: If sale price is less than adjusted basis, you may have a capital loss (but still owe depreciation recapture tax on any depreciation claimed).