How will selling a condo that was used as a rental impact my taxes?

[user17526056324]

How will selling a condo that was used as a rental impact my taxes? Is this a capital gains scenario?

[evelynm]

On the sale of your condo it will be a capital gains scenario. 

The three items that will determine the gain or loss on the sale of your condo are the Adjusted Basis, Depreciation Taken to Date and the Selling Price.

The tax you pay after selling a rental property depends on your profit.  The IRS taxes the profit in two ways.  The first is a capital gains tax that is 0%, 15%, or 20%, depending on your taxable income and filing status.  The second is a maximum depreciation recapture tax of 25%.    Keep in mind to check the updated TurboTax Big Beautiful Bill blog:  One Big Beautiful Bill blog 

The Selling Price for tax purposes would be the Gross selling price less selling expenses such as commissions and other closing costs paid by the seller.

A simple example follows:

$200,000  Net Selling Price

$100,000  Adjusted Basis (135,000 less 35,000 of depreciation)

$100,000  Gain

< 35,000> Depreciation recapture taxed at ordinary income tax rates

$ 65,000    Capital gain, taxed at capital gain tax rate of 0%, 15%, 20%

Here is a link with further details:  Sale of rental - IRS link 

[Zachary_W]

Yes, it is most likely a capital gains scenario, but depreciation recapture is also involved and taxed separately. 

When you sell a condo that was used as a rental property, it will impact your taxes in two main ways: capital gains tax on the profit from the sale and depreciation recapture on the depreciation you claimed while renting it out. It seems likely that this is a capital gains scenario, but there are additional factors to consider.

Capital Gains Tax
If you made a profit (selling price less your adjusted basis, which includes the purchase price and improvements minus depreciation), that profit is typically taxed as a long-term capital gain if you owned the property for more than a year. The tax rate is usually lower than ordinary income tax (0%, 15%, or 20%, depending on your income).

Depreciation Recapture
Since you likely claimed depreciation deductions for the rental you'll need to "recapture" that amount when you sell. This means the total depreciation you deducted is taxed as ordinary income, which could be at a higher rate than capital gains. 

Have an amazing day. Zachary W. (CPA 9+ years)
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