TAX IMPLICATIONS WHEN SELLING RENTAL PROPERTY IN COLORADO SPRINGS
Selling Colorado Springs Rental Property Taxes
Selling rental real estate is like applying for a University scholarship. Both seem like straightforward processes where the seller transfers his title in exchange for cash and the student submits his application in exchange for education.
However, both are made nuanced by non-apparent monetary obligations. The seller still needs to pay taxes to perfect the sale and the student needs to purchase books to finish their studies.
Hence, you have to be aware of the taxes you must pay before selling your rental real estate. Read on to know more about the tax implications when selling rental property if you need to sell my house fast Colorado Springs.
Tax Considerations or Consequences of Selling Rentals
The first thing you must know as a landlord is that a rental property is commercial real estate. These properties are used to generate revenue either through capital gains or rental income. These structures can take many forms including office buildings, warehouses, and housing units. The U.S. has a large home rental industry, with 35% of the population renting homes.
Since these rental properties earn income, they are subject to special taxes. The Internal Revenue Service (IRS) imposes two kinds of taxes when you sell your rental property — capital gains tax and depreciation and recapture tax.
The amount of capital gains tax to pay will depend on how long you’ve owned the property and the amount of taxable income.
Meanwhile, the depreciation and recapture tax is capped at 25% of the gains specific to the real property being sold. To determine the tax amount, the adjusted cost basis of the property is compared to its sale price.
The original price basis of the property is the price you paid to buy it plus the improvements you added. Meanwhile, its adjusted basis is the price of the property after increasing bases like legal fees and decreasing bases like easement grant payments are taken into account.
When combined, capital gains tax and depreciation and recapture tax can amount to a substantial sum, especially if you’ve owned the rental property for a long time before deciding to sell it.
Capital Losses and Capital Gains Explained
The concepts of capital loss and capital gain are simple. In a nutshell, you incur a capital loss if you sold your rental property for less than the adjusted basis. Meanwhile, you have capital gains if you sell the property for more than the adjusted basis.
The two categories of capital gains are short-term capital gains and long-term capital gains.
There is a short-term capital gain if you sold the rental property within your first year of ownership. This gain is considered part of regular income. Thus, it is taxed based on your standard income tax rate.
In contrast, there are long-term capital gains if you owned the property for more than a year before you sold it. Depending on the taxable income of your property, your tax may either be 0%, 15%, or 20%.
Out of the hundred biggest cities in the U.S., 91 have experienced rent increases. Hence, if your rental property is in a megacity, there’s a huge chance it will be subjected to a higher tax rate due to its higher taxable income.
Selling Rental Properties to Clear Sale
Despite the taxes, there are benefits to selling your rental property in Colorado springs. Moreover, you can sell your property to Clear Sale to avoid incurring further expenses.
Clear share are cash home buyers in Colorado Springs purchases houses in Denver, Colorado. We pay in full cash, and we pay immediately. Moreover, we’ll buy your home as it is. Hence, you wouldn’t have to worry about costly and time-consuming repairs. There is likewise no realtor commissions or any hidden fee.
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Clear share has bought hundreds of homes. More importantly, we have helped countless residential and commercial building owners sever their ties from their outdated and costly real estate.
There are tax considerations that you must account for when selling your Colorado Springs, Denver or Fort Collins rental property. While you’ll have to pay taxes, you don’t have to pay any other unnecessary fees as we buy houses Denver. By selling your property to Clear Sale, you can rid yourself of your property quickly and without additional cost.
Visit our website now to know the value of your property and get a free and instant cash offer.