How much tax is paid on selling rental property?
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How much tax is paid on selling rental property?
I was gifted a rental property from my mother who inherited it. When I sell it, how is
tax figured out on selling price?
Asked on October 22, 2017 under Real Estate Law, New Jersey
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 7 years ago | Contributor
For the long answer, you need an accountant: taxes are complicated. For the short answer, when you were gifted the property, you acquired a tax "basis" in it: an effective tax value, more or less equal to what it was worth when gifted to you. (That's one of the things you may need accountant help for: fixing that value, which will be based essentially on real estate comparables in that area.) When you sell it, compare the sale price to the basis: the difference is the profit, and hence what you pay taxes on.
But there are other wrinkles: investments made in the property (renovations, for example) may increase the basis, thereby reducing the taxes you pay on sale. As RE, when you sell it, it's likely taxed at the capital gains rate. Etc. You really need to work with true accountant (e.g. a CPA), not just a tax preparer on this.
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