If you’ve ever done it, you know that selling a piece of real estate is a big undertaking. However, the process of having to sell a rental property is on a whole new level. Taxes are (more) confusing, the timing can be difficult, and figuring out what to do with the current tenants can be frustrating.
Knowing what to expect will help save your sanity and give you the best shot at success. The good news is that Quick Fix Real Estate can make the process a little easier. Let’s look at a few of the questions that might pop up if you’re considering selling a rental property.
Tax Implications of Selling a Rental Property
Selling a rental property is exciting since you’re about to enjoy the return on your investment. Unfortunately, what you won’t enjoy are the taxes that you have to pay on it.
Capital gains taxes are easy for most people to avoid when selling their primary home. However, the rules don’t usually apply to investment properties, and investors will often end up owing hefty taxes.
However, there are a few clever techniques you can use to avoid these taxes. One of the best is to do a 1031 like-kind exchange. This technique involves buying another similar property immediately after selling the first one which allows you to defer the taxes.
The tricky thing about this is that both sales have to fall within certain time limits. This is something that can be difficult since real estate deals are notorious for taking a long time and falling through at the last minute. But with proper planning, you can come out victorious and save on those pesky taxes.
What Happens to Depreciation When You Sell a Rental Property?
Depreciation is expected on any property through normal wear and tear over the years it’s being used. The depreciation deduction allows you to lower your tax burden each year that you own a rental property. However, when it comes time to sell, the IRS usually wants some of that money back. This is called depreciation recapture.
The depreciation recapture works by charging a higher percentage (up to 25%) on the total amount of depreciation you claimed over the time you owned the property. The IRS considers this as a source of income (which, technically, it is), so they hold you accountable and take their cut.
What About Selling Rental Property at a Loss?
If you sell the property at a loss, depreciation recapture doesn’t apply. If you owned the property for more than a year, you can also use the loss to offset taxable income from the previous two years. You’ll have to refile those tax returns to take advantage.
Alternatively, you can carry it forward to offset income for up to 20 years in the future. So your loss can actually turn into a gain over time.
Can I Sell a Property with Tenants?
In general, yes, you can sell a rental property while the tenants are living there. If your buyer is also an investor, this could work out perfectly. If not, you could be facing some challenges with the tenants.
It can be difficult to put a home on the market and have potential buyers come to tour the home. Plus, sometimes tenants can get nasty about the situation. Clear and open communication can help work through some of these issues. Be honest and upfront with your tenants and give them as much of a heads up so they can be on the hunt for new housing.
Carefully weigh the pros and cons of selling your rental property with tenants. In some cases, it can be better (or at least easier) to wait until their lease is up.
How to Sell a Rental Property in Roanoke Fast
Selling a rental house fast is often a priority. Whether you’re trying to take advantage of a 1031 exchange or simply need to liquidate your money for another investment, waiting around to sell on the market can be tedious.
That’s when selling to a cash buyer comes in handy. Here at Quick Fix Real Estate, we can close on your rental property in as little as seven days—with or without tenants.
Learn more today! And if you’re ready to sell your rental property now, contact us to get the process started.