1. What is Rental Property Sale Tax?

When selling a rental property, you may owe two types of taxes: capital gains tax on the profit and depreciation recapture tax on any depreciation you've claimed. This calculator helps estimate your total tax liability.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( Sale\ Price \) — Amount property sold for
• \( Basis \) — Adjusted cost basis of property
• \( Depreciation\ Recapture \) — Total depreciation claimed
• \( Capital\ Gains\ Rate \) — Your long-term capital gains tax rate (typically 15-20%)

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

3. Importance of Tax Calculation

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

4. Using the Calculator

Tips: Enter all values in USD. The capital gains rate should be your applicable long-term rate (usually 15-20%). Basis should include original purchase price plus improvements minus land value.

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 over the years, taxing it at a maximum 25% rate.

Q2: How is adjusted cost basis calculated?
A: Original purchase price + improvements + certain closing costs - land value - depreciation taken.

Q3: Are there ways to avoid this tax?
A: A 1031 exchange allows deferring taxes by reinvesting proceeds in another investment property.

Q4: What if I sold at a loss?
A: If sale price is below adjusted basis, you may have a capital loss rather than gain (but still owe depreciation recapture tax).

Q5: Does this include state taxes?
A: No, this calculator only estimates federal tax liability. State taxes would be additional.