Selling a Rental Property? Minimize Capital Gains Tax

You're considering selling your rental property, but you're worried about capital gains taxes. You bought it for $200,000, it's now worth $350,000, and you'll owe $30,000+ in capital gains taxes. Here's what you need to know.

Capital Gains Tax on Rental Properties

When you sell a rental property, you owe capital gains tax on the profit. If you bought for $200,000 and sell for $350,000, your gain is $150,000. Federal capital gains tax is 15-20% ($22,500-$30,000). California state tax adds another 9.3% ($13,950). Total tax: $36,450-$43,950.

Depreciation Recapture

You also owe "depreciation recapture" tax on the depreciation you claimed during ownership. If you claimed $50,000 in depreciation, you owe 25% tax on that ($12,500). This is in addition to capital gains tax.

Strategies to Minimize Capital Gains Tax

1031 Exchange: Sell your property and reinvest the proceeds in another investment property within 45 days. This defers capital gains tax indefinitely.

Timing: Sell in a year when your income is lower (e.g., after retirement) to reduce your tax bracket.

Charitable Donation: Donate the property to charity. You avoid capital gains tax and get a charitable deduction.

Consult a CPA or tax attorney before selling. Alder Heritage Homes can close fast, which helps with tax planning. Call Connor at (559) 281-8016.