{"id":50747,"date":"2024-11-21T10:33:36","date_gmt":"2024-11-21T18:33:36","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=50747"},"modified":"2024-11-21T10:33:36","modified_gmt":"2024-11-21T18:33:36","slug":"capital-gains-on-rental-property","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/capital-gains-on-rental-property\/","title":{"rendered":"What Are Capital Gains On Rental Property?"},"content":{"rendered":"

Selling a rental property can be a profitable venture, but it may also come with a significant tax bill. When you sell any home for more than you paid, the IRS can classify the profit as a capital gain. There are exclusions on your primary residence<\/a>, but what are capital gains on a rental property?<\/p>\n

Whether you\u2019re planning to sell soon or just exploring your options, knowing the rules around short- and long-term capital gains can help you make informed decisions.<\/p>\n

In this guide, we\u2019ll break down the basics of capital gains on rental property, explore tax rates, and provide strategies to minimize or even avoid these taxes when it\u2019s time to sell.<\/p>\n\n\n\n\n\n

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\n \"homelight\n <\/div>\n \n

Find an Agent Who Knows Rental Properties<\/h3>\n

HomeLight’s Agent Match platform can connect you with a top agent who knows the ins and outs of selling rental properties in your market. Our free tool analyzes over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.<\/p>\n \n

\n Find Agent<\/a>\n <\/div>\n <\/div>\n<\/div>\n\n\n

Editor\u2019s note: This post is meant for educational purposes and should not be construed as professional tax advice. HomeLight encourages you to contact your own advisor.<\/em><\/p>\n

<\/div>\n

What are capital gains on rental property?<\/h2>\n

Capital gains<\/a> on rental property refer to the profit you earn when you sell a home for more than you originally paid for it. The amount you owe in taxes depends on how long you owned the property and your overall income.<\/p>\n

Here\u2019s a closer look at the two main categories<\/a> of capital gains:<\/p>\n

Short-term capital gains<\/h3>\n

Short-term capital gains apply when you sell a rental property you\u2019ve owned for one year or less. These gains are taxed as ordinary income, which means they\u2019re subject to the same tax rate as your regular earnings. Depending on your income bracket, this could result in a higher tax rate than if you held the property longer.<\/p>\n

Long-term capital gains<\/h3>\n

Long-term capital gains apply when you sell a rental property after owning it for more than one year. These gains typically have lower tax rates compared to short-term gains. Rates are determined based on your taxable income and filing status, which makes understanding long-term rates a key part of tax planning.<\/p>\n

<\/div>\n

What are the long-term capital gains tax rates?<\/h2>\n

As noted above, long-term capital gains tax rates are generally lower than short-term rates, providing an incentive to hold onto your property for at least a year. These rates depend on your taxable income and filing status. Here\u2019s a look at the 2024 and 2025 long-term capital gains tax rate tables.<\/p>\n

Long-term capital gains tax rates for the 2024 tax year<\/h3>\n

This table shows the long-term capital gains rates for tax year 2024. Single filers can qualify for the 0% long-term capital gains rate with a taxable income of $47,025 or less. Married couples filing jointly can qualify with an income of $94,050 or less.<\/p>\n\n\n\n\n\n\n
Tax rate<\/strong><\/td>\nSingle or separate filers<\/td>\nMarried filing jointly<\/td>\nHead of household<\/td>\n<\/tr>\n
20%<\/strong><\/td>\n$518,901 or more<\/td>\n$583,751 or more<\/td>\n$551,351 or more<\/td>\n<\/tr>\n
15%<\/strong><\/td>\n$47,026 to $518,900<\/td>\n$94,051 to $583,750<\/td>\n$63,001 to $551,350<\/td>\n<\/tr>\n
0%<\/strong><\/td>\n$0 to $47,025<\/td>\n$0 to $94,050<\/td>\n$0 to $63,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source: IRS.gov<\/a><\/em><\/p>\n

Long-term capital gains tax rates for the 2025 tax year<\/h3>\n

This table shows the long-term capital gains rates for tax year 2025. Single filers can qualify for the 0% long-term capital gains rate with a taxable income of $48,350 or less. Married couples filing jointly can qualify with an income of $96,700 or less.<\/p>\n\n\n\n\n\n\n
Tax rate<\/strong><\/td>\nSingle or separate filers<\/td>\nMarried filing jointly<\/td>\nHead of household<\/td>\n<\/tr>\n
20%<\/strong><\/td>\n$533,401 or more<\/td>\n$600,051 or more<\/td>\n$566,701 or more<\/td>\n<\/tr>\n
15%<\/strong><\/td>\n$48,351 to $533,400<\/td>\n$96,701 to $600,050<\/td>\n$64,751 to $566,700<\/td>\n<\/tr>\n
0%<\/strong><\/td>\n$0 to $48,350<\/td>\n$0 to $96,700<\/td>\n$0 to $64,750<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source: IRS.gov<\/a><\/em><\/p>\n

If you\u2019re curious about how much profit you might earn from the sale of your rental property, check out HomeLight\u2019s Net Proceeds Calculator<\/a>. Next, let\u2019s explore strategies to minimize or defer these taxes.<\/p>\n","protected":false},"excerpt":{"rendered":"

Learn how to manage capital gains on rental property with strategies to avoid or lower taxes. Expert tips to help maximize your profits.<\/p>\n","protected":false},"author":298,"featured_media":50756,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[832,319],"tags":[],"class_list":["post-50747","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-flipping-investing-short-sales","category-selling-advice"],"acf":[],"yoast_head":"\nWhat Are Capital Gains On Rental Property?<\/title>\n<meta name=\"description\" content=\"Learn how to manage capital gains on rental property with strategies to avoid or lower taxes. 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