Congratulations on your decision to sell a rental property. Whether you plan to reinvest your funds into another rental property or pocket the change and retire from being a landlord, there are a few things you should know about how to sell a rental property.
💵 Selling a Rental Property with Tenants
When the property you’ve decided to sell is occupied by tenants, don’t worry! There are a handful of options available to you, all of which contribute to a happy ending for you, your tenant, and your buyer.
First, know the laws in your state. Determine how much notice is legally required. The best-case scenario would be to sell the property to the current tenant. However, if your resident isn’t ready to purchase, here are a few things you can do:
- Offer the tenant a gift as a thank you for allowing you to show the property with them still occupying the space.
- Pay the tenant to move.
- Provide the tenant written notice to vacate within the specified amount of time according to law.
- Wait for the lease to expire.
🏠 Selling a Depreciated Rental Property
Don’t let Uncle Sam scare you with phrases like depreciation recapture tax. While it’s true that the law states that the seller must pay a tax on profit greater than the property’s depreciated value, it’s also true that you might be able to skip right over that technicality if you reinvest the profits into additional investment properties. But here’s the catch – don’t spend that dough and hire a pro to file your paperwork; it’s tricky.
When you’re selling a depreciated property and you have no desire to reinvest, there’s no need to be concerned. There is a 25 percent recapture tax in addition to state income tax on the claimed depreciation, but keep in mind that your taxes will also go down in conjunction with your income.
💲 Capital Gains Tax when Selling a Rental Property
Capital gains tax is another scary term from the realm of the IRS. The government is happy to apply a tax on the profit you make from the sale of your property – whether it’s an investment property subject to depreciation recapture tax, or a residential property prone to capital gains tax. However, most people don’t end up paying those capital gains taxes, and here’s why:
Single homeowners can profit up to $250,000 on the sale of their home every two years, provided that the home is their primary residence and that they’ve lived in the home for at least two of the previous five years. Better yet, married couples can double down and claim up to $500.000 without having to pay the government’s fees. Tax-free gains may apply to persons who meet eligibility standards.
🤔 How to Find a Real Estate Agent to Sell Rental Property
Regardless of whether you plan to re-invest in additional rental properties, or you decide to cash in on your investment, you’ll need a highly qualified real estate agent who specializes in selling rental properties.
The best way to find the right agent for you is to begin by asking your friends, co-workers, and associates who they know and trust. You can also ask for recommendations on social networks, then use those same networks to scope out ratings and reviews.
💲 Costs Associated with Selling
Selling a rental property is an endeavor that requires funding. Initially, you’ll invest in staging the property for sale, which means making necessary repairs and renovations. As the seller, your real estate agent will earn a commission from the sale of your home. If the rental property you’re selling is tenant-occupied, you may also incur costs for encouraging the renter to allow showings or to move prior to termination of their lease. And, while there are exceptions in many cases, anticipate potential tax costs with the sale of your property.
Real estate transactions incur closing costs, which, in most cases, are paid by the buyer, unless negotiated otherwise.
You may feel that if your rental property is tenant occupied or depreciated that you might need to wait to sell. Or, you may feel intimidated by things like depreciation taxes or capital gains taxes. But the fact is, with the right real estate agent on your side, you can sell your rental property quickly and for top dollar. Talk at length with your real estate agent to find out what you can do to contribute to the successful and profitable sale of your rental property.
Your real estate agent is the best source of information about the local community and real estate topics. Call or Text Anne at (707) 245-6090 | Michael at (707) 849-5589 to learn more about local areas, discuss selling a house, or tour available homes for sale.