How much Capital Gains Tax when selling Rental Property?

Question

Okay, so the actual property belongs to my grandmother and she would like to know how much tax she will have to pay if she sells it. The people from real estate say she can get $450,000. I dont know if it matters or not, but she has owned this property for at least 20 years. Any help would be greatly appreciated.

Answer 1

She'll pay capital gains tax on the difference between her cost basis and the net proceeds from the sale.

Her basis is what she paid for it, plus any acquisition costs, plus any improvements, less any depreciation allowed or allowable while she rented the property out.

Her net proceeds are the sales price less any cost of selling such as real estate commissions paid to a Realtor.

The difference is her capital gain. It's taxed at a preferential rate since she owned it for more than one year. The rate is 15% unless her marginal rate is 15% or less where it's 5%. However, the portion represented by the depreciation recapture may be taxed at a maximum rate of 25%, depending upon her marginal rate.

Without knowing her cost, the amount of any improvements and how much depreciation was allowed or allowable it's not possible to say what her final tax bill will be.

Answer 2

If your grandmother paid $300K for the property and it's now selling for $450K, she's got 150K gain from appreciation, taxable at 15%.

However, this was rental property. On a $300K building, her adjusted basis may now be $150K due to depreciation. The recapture of the depreciation is taxed at up to 25%.