If I sell my rental property do i pay taxes We often hear, “nothing in this world is certain, except death and taxes”. It is a tough truth that all of us need to go by in this world. Taxes, like death, is inevitable. Thus when selling a rental home, tax implications are necessary to consider.
However, before we go to the hard part of tax calculations, we need to classify first if your property is a rental home. A rental home is a property where the owner receives a rental amount from the occupant or tenant.
At this point, you have already classified your property as a rental home and finally decided to sell it. There are several taxes and calculations that you need to consider. Listed below are the tax implications that the United States Internal Revenue Service (IRS) has identified depending on the type of rental home.
Tax-Free Rental
Tenants occupy your property for a total of 14 days or less in a year. This is calculated based on the number of days your property was occupied, regardless of the number of tenants. In this case, you do not have to include this on your income tax considerations as long as you rented it based on “Fair Market Value”.
- Own Home
In case you use the property for 14 days or 10% of the total rent days in a year, IRS will classify it as an “Own Home” or your residence. With such a condition, this does not fall under a rental property. Tax implications on such property will fall under Personal Residence taxes.
- Rental Property
If I sell my rental property do i pay taxes?. Tenants occupied your property for more than 14 days and you occupied it for less than 14 days or the 10% equivalent as stated above. In such a condition, you have a Rental Property. All income generated from that property must be declared with the IRS and all expenses must be equally deducted.
Having figured out that your property was, in fact, a rental property, selling it has the following tax implications. IRS has identified Rental Properties to be subject to Federal and State capital gains taxes. Capital gains taxes are a result of your selling amount of the property and the adjusted tax basis.
Capital gains can be long-term or short-term. The IRS identifies it as short-term if you own the property for one year or less. Short-term rental properties are taxed at your ordinary-income tax rate. On the other hand, the IRS identifies your property as long-term if it is owned for more than one year. Long-term rental properties are taxed at rates from 0% to 20% depending on your income bracket. Moreover, homeowners’ tax rates are usually at 15%.
If I sell my rental property do i pay taxes?. Capital gains tax is not the only thing you need to consider. The IRS regulation also requires you to depreciate your rental property value for over 27.5 years for 3.636% per year. Every year after you’ve purchased the property, you receive a tax deduction based on depreciated expenses. However, since you are now selling the Coral Gables property, this deducted tax must be returned in partial.
As a summary, If I sell my rental property do i pay taxes?. selling of a rental property incurs taxes (Capital gains) and tax returns from previous tax deductions related to the property. So before considering to sell your rental property, better consult a tax professional on the tax implications.
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