Wednesday, August 3, 2016

Tax Implications of Selling Your Rental Property - SImplified

With the cost of college going up, renting a house is becoming more and more popular.  The result is that there are a lot more rental properties out there.  When you go to sell your rental property, there are tax implications.  Don't be caught off guard.

Selling your rental property triggers a couple of different types of taxes - depreciation recapture and capital gains tax.

Capital gains taxes are lower than ordinary taxes, and there generally 15% or 20% depending on your ordinary income tax bracket.  More information click here <<CAP GAINS RATES>>

First step is to calculate your basis in your property.  For example if you bought your property for $100,000 and have depreciated $25,000, your basis would be $75,000, then for example you sell the property for $150,000

In this simple example, here are the tax components

$75,000      Cost
($25,000)    Depreciation
$50,000      Basis

$150,000    Sales Price
$100,000    Gross Profit

The tax implications are that of the $100,000 in profit.

The profit is then broken into components.

$25,000 has been written off through depreciation, this is 1250 gains and are taxed at 25%, ($6,250)

The remaining profit of $75,000 is treated as long term capital gains.  And depending on your situation, that could be taxed at 15%  ($11,250)

Thus your total tax on this transaction would be 11,250 + 6,250 = $17,500


Doug Zandstra CPA CFE EA
Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503616 970 3000

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