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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