A.D. Cantelmo Property Management
Our Business is Property Management Orange County California
Selling your Rental
Property
You have owned your
rental property for a while and you have made a little money, but you feel like
it’s time to sell and cash in on the Equity that your home has accumulated
through the years. You contact a Real Estate Agent to find out how much your
home is worth and also how much it will cost you in commissions and other selling costs. Now you
have all the numbers you need to make your decision, or do you?
Not quite! Selling your rental property is not the same
as selling your personal property. Most people know that when you sell your
personal property, you get a tax break on the profit. You get $500,000
exemption when you are married and $250,000 when you are single. That means
that if you profit within these numbers, you pay no taxes on that profit. If
you go over those numbers, then you will be taxed on the amount over the
exemption and since I am not an accountant, I will leave the tax rate that you
would pay to your accountant.
Say it ain't so
So now, let’s get back
to our rental property owner who wants to sell their rental property. Ok, you
know approximately what your house is worth and you know what the commissions
are going to cost you and the other selling cost’s, so you can now figure out
how much you are going to put in your pocket once you sell the property.
HOLD ON, YOU FORGOT
SOMETHING!
That’s right, you
forgot a tiny little thing called taxes. Remember, you do not get the exemption
as you would if you sell your personal property, when you sell your rental
property. Your must pay “Long Term Capital Gains”. (Long term Capital Gains tax
is a tax applied to assets held for more then 1 year. The amount will depend on
your total taxable income. The rates are 0, 15%, or 20%. And you may also have
state taxes depending on where you live.
Ok, now you know
everything, right? Not quite, because over the years you have owned the
property, you deduct depreciation for that property every year. The
depreciation is for the building, not the land. I’m not going to get into the
numbers of depreciation, again, I will leave that for your accountant, but none
the less, since you have taken the depreciation for the property, and the
property has probably gained in value, not depreciated, the government would
like some of that money back. That’s called recapture. If you have owned the
property for a long time, this amount can be substantial. And again depending
on the state you live in, you may also owe your state depreciation recapture.
So when you sell your
rental property, the taxes you will be paying are, Federal Capital Gains,
Depreciation recapture and depending on your state, you could have state Capital
gains and state depreciation recapture.
The best thing to do,
if you are thinking of selling your rental property, talk to you accounting professional
and find out what the taxes are going to be. Then you can decide what you need
to do. You may want to do a 1031 exchange, but that’s another conversation.
If you have any
questions, you can contact me any time
Tony Cantelmo
714-313-7413
A.D. Cantelmo Property Management
Specializes in Property Management Orange County Ca.