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Step 1
Occupy your rental property for 2 years. In order to qualify for the capital tax gain from your rental property you are required to live in the property for 2 years out of the 5 years you owned the rental property.
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Step 2
List your original property price. For example, if your purchase price was $300,000, list that price first on a sheet of paper.
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Step 3
Subtract the cost of improvement to your rental property. For example, if your total improvement cost was $12,000, subtract this amount from the purchase price of $300,000.
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Step 4
Subtract the depreciation cost, such as property taxes, loan interest and all other cost that resulted in depreciation of the property value. For example, if your depreciation was $24,000 this price would be subtracted from the purchase price of $300,000. Purchase price $300,000 - $12,000 - $24,000 = $264,000. This sum total is the adjusted basis.
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Step 5
Determine the taxable gain amount. In order to determine the taxable gain on your rental property you will need to have the fair market value. For example, if the fair market value is listed as $520,000, you would list that amount first.
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Step 6
Subtract your adjusted basis amount from the fair market value. For example, subtract $264,000 from $520,000.
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Step 7
Subtract the selling cost from the fair market value. If your selling cost was $3,500, subtract that amount to determine your capital gain on your rental property. For example, fair market value $520,000 - $264,000 - $ 3,500 = $252,500. You have now determined the capital gains tax on your rental property.
