Tax Implications When Selling Your Texas Rental Property

Key Points
    Add a header to begin generating the table of contents

    There can be several reasons for wanting to have your rental property sold. However, selling your rental property in Texas comes with a number of steps, confusion, and complications. These may involve tax implications, which you need to be aware of and familiarize yourself with when selling your rental property. Dealing with matters to do with taxes can be complicated and expensive. But, while taxes for selling rental property in Texas are very confusing for many, you should not worry. In this article, we will look at taxes for selling rental property in Texas, and more.

    Researching on your tax obligations of selling your property in Texas involves becoming aware of the law, including knowing the tax consequences. You must, therefore, be conversant with the different tax laws in the sale of an investment property so that you don’t make any blunders when determining what your proceeds and profits will be after taxes. Make sure before you make the final decision of selling your rental house that it’s what you want to do.

    Taxes for selling rental apartments in Texas are going to include property taxes at both the State and Federal levels. The tax consequences will generally involve capital gains and capital losses. The difference between the sale amount of the rental property and the adjusted tax basis will determine capital gains. The tax obligations involve this area of the property tax laws and a tax rental property calculator can help you estimate this.

    Capital gains or capital losses when selling

    Capital gain or capital loss is made every time a rental property is sold, unless you bought the property before 20th September 1985. The capital gains or losses are also made from capital improvements ever-since the acquisition date. Capital gains can refer to either short-term or long-term gains. This will help to determine what your tax obligations for selling a rental property will be.

    Sometimes individuals acquire rental property and then discover it is not for them. They can then decide to sell the property within the year of acquisition. This is considered short-term and so if the rental property gets sold at a profit, it would then be taxed as short-term capital gains. This is normally taxed at the standard income-tax rate.

    Rental property held for more than one year since acquisition is subjected to a different rate of tax. This is known as a long-term capital gain. Assuming you’ll have owned the property for longer than a year, the federal capital gains tax rate ranges between 0% to 20%. The tax rate will depend on your tax bracket and for most people it is 15%. Again you can utilize a selling rental apartment tax calculator, to help you determine this.

    If you co-own a rental property, capital gain, or capital loss is made according to the interest in your property. However, the gains or losses can be-dismissed if there is a rollover (disregarding a capital gain). Rollover applies in the case of a demolished or destroyed rental property or property that has been transferred to a former spouse.

    Tax deductions on selling rental property

    It is important to pay close attention to property tax deductions when you’re going to sell. You’ll still have your usual tax deductions for your rental property up until the time it is sold. It may be that you’re not going to get a profit when selling your house in San Antonio. This will put you into a situation known as a capital loss. You’ll be limited as to the sum you can deduct for capital loss. This loss can be carried forward for specific number-of years. Just as there are short-term and long-term capital gains, the same will apply for capital losses.

    Capital gains or losses from capital improvements

    Tax expenses incurred when selling a rental property will determine the basis of the property. Usually, this is the amount that you paid to acquire the rental property plus, added expenses that you may have incurred to make the sale. In case events occurred that reduced the value of your rental property, then you can likewise lower the basis amount. Simultaneously, if you improve the rental property, you can then add the value of improvements to the basis amount. There are some benefits of having an increased basis as this can help to decrease the amount of taxes you’ll need to pay. On the other hand, you can also enjoy the benefits of an increased tax deduction if you have a capital loss.

    Other potential tax obligations you will also incur during the sale of a rental property in Texas is the new NII tax (Net Investment Income Tax). However, this is applicable only to specific thresholds and manages capital gains. You will have to pay 3.8 percent on your net investment income if this applies to you. Being as this isn’t your principal residence, you’re not eligible to be excluded for the capital gain, which usually totals $250,000/$500,000.

    Another area where there are potential tax consequences when selling your rental home is property depreciation. A property depreciates with time and the IRS recognizes this so they are rules in place. In general, this pertains to how your depreciation deduction calculations are handled. Depreciation is typically a tax deduction that allows property owners to recover the costs of their property.

    Basically, the rules are that rental properties can be depreciated over 27.5 years with MARCS system or 40 years period with an alternative system. So, each year, a part of this can be deducted against the profit you’re making. This works out to 3.636 percent per year and improvements must be calculated into the formula of depreciation. Looking at the legalities in rental property tax in Texas when selling may mean that you consider other things. For instance, if you’ve been claiming depreciation on property, you may be subjected to depreciation-recapture tax.

    What happens if you don’t pay property taxes?

    You could have your property seized or face a fine if your taxes are not paid. In addition, not paying your property taxes could also have a bad reflection on your credit score, which can make it difficult to acquire further properties. It is advisable that you consult with the IRS-Publication 594.

    You will most likely want to employ the services of a property agent or accountant to help you with this. On the other hand, you can make use of the rental property sale tax calculator easily available online. This gives you a good inkling as to what the figures of your taxes for selling rental property Texas will be. If you’re really conversant with the tax laws in Texas, you can use property tax accounting software to assist you in filing your taxes relating to the sale of your rental property.

    If you intend to sell your rental property, don’t hesitate to give us a call. We deal with cash acquisition of houses in San Antonio Texas. Since we offer cash payment, we can close the deal to sell your rental property fast and within your timeline. Give us a call for great rental property offers!

    CALL US AT (210) 547-7505 TODAY!

    More Real Estate News from Cyber Homes

    James Vasquez

    James is the owner of Cyber Homes, a leading cash home buying company in the U.S. He primary buys and resells single family residential homes. James has purchased, fixed/renovated, and flipped over 100 houses in the 10 years of his real estate career. Helping homeowners out of difficult situations while providing for his family, is a gift from God.

    Start your Blazing FAST OFFER