How Much Will I Pay In Taxes When I Sell My Rental Property?

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The number 1 question we get from people selling a rental property is how much am I going to have to pay in taxes when I sell it? And the answer could range from zero to some money.

So normally, if you’ve lived in the home for 2 of the last 5 years, you may not have to pay any taxes when you sell the home as a married couple, you can be exempt from $500,000 of profit on a rental property. And as a single person, you could be exempt from $250,000 of profit on a rental property. But if you have not lived in it in the last 3 years or more, you might have to pay taxes on the gain. So this is how it works.

Let’s say you purchased a home for $200,000 5 years ago and now you’re selling it for $350,000 okay, and during those 5 years, you wrote off $10,000 a year in depreciation, the IRS considers that you now your basis of what you paid for the home is really more like $150,000 you sell it for $350,000 minus commission and expenses of approximately 10% which are made of of commission, tax, title & repairs. You would end up with a “capital gain” on the sale and would have to pay taxes on the gain of $175,000 either at the 15% tax rate or the 20% tax rate.

That means out of the $175,000 net profit, you would have to set aside to pay the IRS between $25,000 and $35,000 for the following year’s tax return. The math seems simple, but definitely, there are some exceptions to the rule. Some of the exceptions include if you’re military and you’ve got transferred out of the area, you may not have to pay taxes on the gain or if you were being transferred for a job or for health reasons or you have to move because your family status has changed. All of those are exceptions to the rule, so I definitely would advise you to consult your tax provider before you make this sale.

There’s also another way to defer paying any taxes on the gain and roll that profit over into your next investment property. That’s called the 1031 exchange. It costs a little bit of extra money at closing, less than a thousand dollars but just a way to avoid taxes. Now, in that case, you can’t take any of the net proceeds when you sell. It all has to go into the next property and there’s one more little tax gotcha. And that is if you do not live in the state and you’re not a resident, the title company will charge you a 2% of the sales price fee to hold back taxes because next year when you file your taxes, the state of Colorado wants to get their cut. 

If you’re investing in the state, but you’re not a Colorado resident, but you really want to work with a great real estate agent in order to figure out what to do, what not to do to get your home ready for sale, and how much you’re going to net in a pocket when your home sales.

And if you’re interested in finding that out, please call our office. And if you’d like to receive your free report on how to avoid the 6 costly mistakes to avoid when you’re selling your rental property. To Receive a FREE Report on How to Sell Your Home Fast and for Top Dollar, you can call Barb Schlinker directly at 719-319-1802 or you can visit and for insider access to homes you cannot find elsewhere online visit

Barb Schlinker, Listing Agent