# How to Figure Capital Gains on the Sale of Rental Property

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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. However, given that the Internal Revenue Service lets you use what you pay for closing costs and for property improvements to both reduce your selling price and increase your purchase cost, your profit might not be as large as you think. On the other hand, depreciation recapture might leave you with an additional unexpected tax bill.

## Calculating Gain or Loss

you have a gain that will be taxable. If it's negative, you have a loss that you can use to offset other taxable gains.To find the bottom line for house with a \$116,450 adjusted basis and a \$164,115 amount realized, subtract the former from the latter to find a total gain of \$47,665. The tax treatment of the gain depends on how long you held the asset -- short-term capital gains taxes apply to homes held for less than one year, and long-term gains apply if you hold it for more than a year.

## 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 25 percent bracket, the capital gains tax rate goes up to 15 percent. If your income is \$200,000 or higher if you're single or \$250,000 or higher if you're married, you'll have to pay a 3.8 percent Medicare surcharge, making your capital gains tax rate 18.8 percent. Finally, if you make over \$400,000 if you're single or \$450,000 if you're married, you pay the surcharge and a 20 percent capital gains rate for a total tax of 23.8 percent. If you held the house for less than a year, your tax rate will be your regular income tax rate, plus the 3.8 percent surcharge if your income is high enough. These rates were valid as of 2013, but can be altered at any time by the IRS and the federal government.

## Depreciation and Recapture

Source: everydaylife.globalpost.com

Category: Taxes