1. What is Capital Gain on Rental Property?

Capital gain is the profit you make when selling a rental property after accounting for the original purchase price, improvements made, and depreciation taken. It's subject to capital gains tax which may be different from ordinary income tax rates.

2. How Does the Calculator Work?

The calculator uses the capital gain formula:

Where:

• Sale Price — Final selling price of the property
• Purchase Price — Original purchase price of the property
• Improvements — Cost of capital improvements made over time
• Depreciation — Total depreciation claimed on the property

Explanation: The formula calculates your taxable gain by adjusting your original basis (purchase price) for improvements and depreciation before subtracting from the sale price.

3. Importance of Calculating Capital Gain

Details: Accurate capital gain calculation is essential for proper tax reporting, determining tax liability, and making informed decisions about selling rental properties.

4. Using the Calculator

Tips: Enter all amounts in dollars. Improvements and depreciation are optional (default to $0). Sale price and purchase price are required.

5. Frequently Asked Questions (FAQ)

Q1: What counts as a capital improvement?
A: Improvements that add value, prolong life, or adapt to new uses (e.g., new roof, addition) - not ordinary repairs.

Q2: How is depreciation calculated?
A: Residential rental property is depreciated over 27.5 years using the straight-line method.

Q3: Are there ways to reduce capital gains tax?
A: Yes, through 1031 exchanges, primary residence exclusion (if applicable), or capital loss harvesting.

Q4: What's the difference between short-term and long-term capital gain?
A: Short-term applies to properties held ≤1 year (taxed as ordinary income). Long-term applies to >1 year (lower tax rates).

Q5: Is this calculator sufficient for tax filing?
A: This provides an estimate. Consult a tax professional for actual tax calculations as other factors may apply.