What Is Capital Gains Tax on Real Estate Rentals?

Capital gains tax on real estate rentals is the tax paid on money earned from a rental property. This amount is reported on Schedule D of IRS Form 1040 annually.If you own multiple properties or are unsure of how to file this tax, it is best to find a good accountant to help you avoid an audit.

Capital gains tax is calculated using the difference between the initial purchase price of a property and the current sales price. Even if you receive a property due to someone dying you will be required to pay capital gains tax on the property for both the state and federal governments.

If you are a landlord and need to be able to calculate this you must keep excellent and detailed records of the property and all expenses related to it, such as purchase price of the real estate, rental income, security deposits received, accumulated depreciation, cleaning and maintenance expenses, homeowner's insurance and additional expenses for replacing the roof or other real estate maintenance.

When calculating capital gains tax there is a capital gains tax credit, which some people are eligible to receive. In general, to be eligible for this credit one cannot make more than $250,000 a year in profit if single or $500,000 in profit a year if married, and must have lived in the home for at least five years. Again, this is why it is important to get a good accountant to help you with your real estate situation; every year both the federal and state governments adjust the tax laws regarding capital gains tax. A tax accountant will keep abreast of these changes and advise you on annual updates.