Taxes for Selling a Rental Property in 2024

Last Updated: January 2024

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3 Main Taxes When Selling a Rental Property

Rental property taxes and the way they are applied when selling a rental property can seem a little complex at first. When selling a rental property, there are 3 main tax components to be aware of: Cost Basis, Capital Gains, and Depreciation. Each is used to calculate the final total amount of taxes due for selling a rental property (if applicable).

1. Cost Basis

When selling a residential rental property, the cost basis is what is used to determine the capital gains or losses realized from the sale. Cost basis is generally calculated as the original purchase price of the property, adjusted for certain expenses, improvements, depreciation, and other rental property deductions taken over the years. This basis is what is used to calculate the amount subject to capital gains (see below) which is calculated by subtracting the cost basis from the property’s sale price. If the sale price is higher than the cost basis, it results in a capital gain. Conversely, if the sale price is lower than the cost basis, it leads to a capital loss.

2. Capital Gains

3. Depreciation Recapture

Depreciation is an accounting method that allows investors to deduct the cost of the property over its useful life. Some tax saving techniques such as cost segregating can even accelerate depreciation deductions. However, when the property is sold, any depreciation claimed over the years must be recaptured and taxed as ordinary income. The depreciation recapture tax rate is generally 25%. The recaptured amount is calculated by subtracting the property’s adjusted basis (original purchase price minus any depreciation deductions) from the property’s sale price. The resulting recaptured depreciation is then taxed at the applicable tax rate.

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Tax Rates When Selling a Rental Property in 2024

Long Term Capital Gains Tax Rates for 2024

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
0%	$0 – $47,025	$0 – $94,050	$0 – $47,025	$0 – $63,000
15%	$47,025 – $518,900	$94,050 – $583,750	$47,025 – $291,850	$63,000 – $551,350
20%	$518,900+	$583,750+	$291,850+	$551,350+

Short Term Capital Gains Tax Rates for 2024

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
10%	$0 – $11,600	$0 – $23,200	$0 – $11,600	$0 – $16,550
12%	$11,600 – $47,150	$23,200 – $94,300	$11,600 – $47,150	$16,550 – $63,100
22%	$47,150 – $100,525	$94,300 – $201,050	$47,150 – $100,525	$63,100 – $100,500
24%	$100,525 – $191,950	$201,050 – $383,900	$100,525 – $191,950	$100,500 – $191,950
32%	$191,950 – $243,725	$383,900 – $487,450	$191,950 – $243,725	$191,950 – $243,700
35%	$243,725 – $609,350	$487,450 – $731,200	$243,725 – $365,600	$243,700 – $609,350
37%	$609,350+	$731,200+	$365,600+	$609,350+

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Tax Rates For Rental Property Sales in 2023

Long Term Capital Gains Tax Rates for 2023

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
0%	$0 – $44,625	$0 – $89,250	$0 – $44,625	$0 – $59,750
15%	$44,626 – $492,300	$89,251 – $553,850	$44,625 – $276,900	$59,751 – $523,050
20%	$492,300+	$553,850+	$276,900+	$523,050+

Short Term Capital Gains Tax Rates for 2023

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
10%	$0 – $11,000	$0 – $22,000	$0 – $11,000	$0 – $15,700
12%	$11,000 – $44,725	$22,000 – $89,450	$11,000 – $44,725	$15,700 – $59,850
22%	$44,725 – $95,375	$89,450 – $190,750	$44,725 – $95,375	$59,850 – $95,350
24%	$95,375 – $182,100	$190,750 – $364,200	$95,375 – $182,100	$95,350 – $182,100
32%	$182,100 – $231,250	$364,200 – $462,500	$182,100 – $231,250	$182,100 – $231,250
35%	$231,250 – $578,125	$462,500 – $693,750	$231,250 – $346,875	$231,250 – $578,100
37%	$578,125+	$693,750+	$346,875+	$578,100+

Taxes for Selling a Rental Property FAQ

How Much Taxes Do You Pay When You Sell a Rental Property?

When selling a rental property in the United States, real estate investors need to consider all financial aspects of the rental property. The most prominent are capital gains tax and potential depreciation recapture tax. The capital gains tax is calculated based on the profit from the sale, taking into account the property’s adjusted basis. The tax rate depends on the holding period, with long-term capital gains generally taxed at lower rates. Depreciation recapture tax may apply if the property was depreciated, and it is typically taxed at a flat rate of 25%.

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How to Avoid Taxes When Selling a Rental Property?

Much like the requirement to pay local government property taxes, paying taxes when selling a rental property is not technically avoidable. Minimizing or reducing is often more appropriate than “avoiding”, and there are several strategies that real estate professionals for tax purposes and investors often use to potentially minimize taxes when selling a rental property in the United States.

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How Does Selling a Rental Property Affect Taxes?

Whether you are selling a commercial property or residential property, the transaction of selling can have significant tax implications. Most of it will depend on whether or not you sold the property for a profit. If yes, then expect a larger tax bill to account for the newly minted profits. This is often the case with capital gains, which are based on the profits from the sale. Additionally, if you had historically taken depreciation deductions, selling the property is the time when recapturing those deductions is applied. If there was no realized profit from the sale, or even a loss, then your tax bill can potentially be equal or smaller than previous years.

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