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How
to Calculate and Lower
Your Capital
Gains Tax When Selling Rental Property
If you are
selling rental property for profits, it's crucial that you know to
calculate and cut down on your capital gains tax quickly and easily.
Find out to protect your profits with this step by step guide right now.
Are you selling rental property for the first time? Click here to
learn what is capital gains on rental property and how to slash your
capital gains tax effectively.
Step
1: Calculate the Adjusted Cost Basis for Your Rental Property
Adjusted cost basis is simply a financial term
that refers to the cost that you paid to buy your rental property in
the first place.
Adjusted
Cost
Basis = Purchase Price + Buying Costs + Home Improvement Costs
+
Selling Costs -
Depreciation
Purchase Price
- Price that you paid for your rental property in the first place.
Buying Costs
- The transaction costs incurred when you bought your rental property.
This includes legal fees, bank fees and sales commission.
Home
Improvement Costs - Amount that you spent on property
improvements and maintaining your rental property according to the
local housing standards.
Sales Cost
- The transaction costs that you rack up when selling your rental
property. This includes your advertising costs, legal fees, bank fees
and sales commission.
Depreciation -
As a rental property owner you are allowed to claim the depreciation of
your property as tax deductions. When selling rental property, you will
have add back the depreciation that you have claimed to the total
amount of
taxable income.
Step
2: Find Out Your Tax Rate and Calculate the Capital Gains Tax
Capital Gains = Selling Price of Rental Property - Adjusted Cost Basis
Total Capital
Gains Tax = (Capital Gains x Tax Rate) + (Depreciation x 25%)
Tax Rate
- Your tax rate can vary from 10% to 35% depending on your tax bracket
and whether your profits are considered a short term or long term
capital gain. The table below will show you the complete list of tax
rates:
| Tax
Bracket |
Short
Term Capital Gains |
Long
Term Capital Gains |
| $0
– $8,025 |
10% |
10% |
| $8,026
– $32,550 |
15% |
15% |
| $32,551
– $78,850 |
25% |
25% |
| $78,851
– $164,550 |
28% |
25% |
| $164,551
– $357,700 |
33% |
25% |
| $357,701+ |
35% |
25% |
Selling rental property for profits after owning it for less than 1
year will cause you to face heavier taxes at short term capital gains
rate.
If you buy
and
hold your rental property for more than 1 year before selling it, you
will be taxed at the lower long term capital gains rate.
Want to learn MORE practical must-know
facts on
slashing your property taxes?
Return
from
this Selling Rental Property page to our Rental Property Tax Deductions
guide
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