Tax Implications When Selling Rental Property in California
Whether you have grown tired of the landlord title or need to sell your rental property for other reasons, make sure you are aware of the tax implications with selling your rental property. It is important to be aware of what awaits for you after selling a rental property. We will break down some of the things you need to know, and hopefully help you find a solution.
Capital Gains and Capital Losses
Become familiar with the tax implications of selling the rental property. It will involve capital gains or capital losses. These implications will involve the area of the tax law, both on the Federal and State level.
Determine your capital gain by figuring out the difference between the sale price and the adjusted tax basis. Capital gains pertain to either a short term or long term gain.
There is a chance that you purchased rental property and found it wasn’t for you and you may decide to sell it within the year. If this is your situation, then this would be short term. So if sold at a profit, it would be taxed as short-term capital gains. This is taxed at the standard income tax rate.
If you have owned your property for longer than one year it will be subjected to a different tax rate. This is a long-term capital gain. The rate can be anywhere between 0% to 20%, but most often falls within the 15% range.
The tax implications when selling rental properties are determined by the basis of the rental property. So usually it will be the amount that you paid for the property, plus additional expenses that you incurred to make the sale. If there was damage or something happened that decreased value, then you can likewise decrease the basis amount. Same goes if you made modifications to the property that added the value of these improvements to the basis. Keep in mind that there are some advantages to an increased basis as it can help to reduce the amount of taxes you will have to pay. This will allow you to enjoy an increased tax deduction with a capital loss.
You may also potentially run into another tax consequence of selling a rental property: incurring the new Net Investment Income Tax. If this applies to you, then you may have to pay an additional 3.8% on your net investment income. This is applicable to specific thresholds and deals with capital gains. Since this is not your personal residence you will not be eligible for the capital gain exclusion. Which amounts to $250,000/$500,000.
Although you may feel overwhelmed, it is important to be aware of these tax implications when selling your rental property in California. If you feel that you are aware, and it is the best decision to sell your property still, then you are probably asking yourself where to start now.
Selling Your Rental Property
Because of all of the taxes you are going to have to pay, it is important to make the selling process as inexpensive as possible. If you hire a real estate agent, make sure you are aware of the huge cost they will be. On top of the large realtor fees, keep in mind that in order to sell your home, they may require expensive repairs and renovations.
If you want to sell your rental property on your own, it is possibly the best option to save money, but you may have a hard time finding potential buyers since you can’t list your home on the market when selling your house by owner. When you do find a buyer, they may only buy the home if you make repairs which can become very expensive and takes a lot of time. You also will need to consider that if you sell your property, you may not have tenants wanting to live in it during the process so make sure you can afford to have the property vacant.
If you are feeling overwhelmed and really don't want to pay more money during the selling process, then sell to Penny Lane Home Buyers. We are cash buyers and want to purchase your rental property for cash. We will purchase your property as is so that you don’t have to make any changes to the home or pay a percentage of your profits to a realtor. This will help save you money so that after you have paid your taxes on this property you can still profit off of the home.
Contact us today at 805-250-4520 for more information. We will come out today and get you a cash offer and you can be freed from this property in as soon as seven short days.