Legal Assistant Information on Tax Consequences of Selling a Rental Property

As a legal assistant, I am happy to provide general information on the tax consequences of selling a rental property.

When an individual sells a rental property that has been owned for more than a year, they will be subject to a capital gains tax on the profit made from the sale. The capital gains tax rate varies depending on the individual's income level, but it typically ranges from 0% to 20%. Additionally, state income taxes may also apply.

It's important to note that depreciation may impact the amount of capital gains tax owed. If an individual has taken depreciation deductions on the property, they must recapture that depreciation when they sell the property. The recaptured depreciation is treated as ordinary income and is subject to ordinary income tax rates.

There are potential exceptions and limitations to the capital gains tax. For example, if the property was owned for less than a year, it will be subject to short-term capital gains tax rates which are typically higher than long-term rates. Additionally, if the individual sells the property as part of a 1031 exchange, which involves exchanging one investment property for another, they may be able to defer paying the capital gains tax.

If you are considering selling a rental property, it is recommended that you consult with a licensed attorney or tax professional to discuss your specific circumstances and any potential strategies for minimizing tax liability.