When you sell a rental property, your profits are subject to capital gains tax since you don’t get the same exclusions that you do on your personal residence.

What is the capital gains tax rate on a house?

Capital Gains Tax. Assuming that you held the house for over a year and made a profit, your capital gains tax rate depends on your income. If your income falls in the lowest two tax brackets, your capital gains rate is zero percent. When you start paying taxes in the third bracket, the capital gains tax rate goes up to 15 percent.

What happens when you sell a rental property and make a profit?

If you sell your rental property, which is a “capital asset,” and make a profit, the profit is called a “capital gain.”

Are there any States with high capital gains taxes?

The usual high-income tax suspects (California, New York, Oregon, Minnesota, New Jersey and Vermont) have high taxes on capital gains, too. A good capital gains calculator, like ours, takes both federal and state taxation into account.

When do you defer capital gains on a rental property?

Section 1031 of the tax code allows you to defer your taxes on the capital game, with some conditions: The deferral of capital gains taxes will occur after selling a rental property. Then, the seller can purchase a like-kind property.

Do you pay recapture tax on sale of rental property?

You pay the 25 percent recapture tax on the difference between the depreciated basis and the sales price, up to $125,000. If you sell for more than that price, it’s a capital gain and subject to the capital gains tax rate.

How do you calculate gains on rental property?

There are a few steps to calculating your rental property gains. Let’s work through them. Calculate the purchase price or basis of your rental property. The original basis is your purchase price or $340,000 in this case. In the scenario that you have carried over basis through multiple contiguous 1031 exchanges, your starting basis may be lower.

How much tax do you pay when you sell a rental property?

For a married couple filing jointly with a taxable income of $480,000 and capital gains of $100,000, for example, taxes on those rental-property gains would amount to $15,000. But there are ways to reduce the burden when you sell a rental property; below are three strategies.

Is there an exclusion for capital gains on sale of primary residence?

The IRS offers a tax exclusion of $250,000 for single taxpayers and $500,000 for married taxpayers for capital gains resulting from the sale of their primary residence.

How to reduce your tax exposure when selling a rental property?

What You Get: The ability to subtract those losses from the capital gains realized from the rental property sale An effective way to reduce your tax exposure when selling a rental property is to pair the gain from the sale with a loss in another area of your investments.