How to Figure Capital Gain on a Rental House

Selling a rental property can be a great way to realize a profit, but it’s important to understand how capital gains are calculated so you can plan accordingly. Here’s how to figure the capital gain on a rental house.

Calculate the Basis

The first step in determining the capital gain on a rental house is to calculate the basis. The basis is the original cost of the property plus any improvements or upgrades you have made over the years. This number is used to determine the profit or loss on the sale of the property.

Determine the Sales Price

The next step is to determine the sales price of the rental house. This includes any money you receive for the property, such as the purchase price, as well as any additional costs you incur during the sale process, such as real estate agent fees or closing costs.

Calculate the Capital Gain

To calculate the capital gain, subtract the basis from the sales price. If the resulting number is positive, you have a capital gain. If it is negative, you have a capital loss.

Tax Implications

Capital gains on the sale of rental property are subject to federal and state taxes. The amount of tax you will owe depends on several factors, including the length of time you owned the property and your tax bracket.

Conclusion

Calculating the capital gain on a rental house can be complex, but it’s an important step in determining the profit or loss on the sale of the property. Be sure to consult a tax professional for guidance on your specific situation.