The direct answer
Selling a rental property requires two independent calculations: cash proceeds after sale costs and debt payoff, and federal tax gain based on amount realized and adjusted basis. Depreciation history, improvements and possible gain-character rules can materially alter tax outcomes even when the property's sale cash is straightforward.
Calculate seller cash first
Subtract agreed transaction costs, concessions, mortgage payoffs and other settlement charges from gross sale price, reconciling escrow adjustments.
To apply the approach to an editable scenario, use the Home Sale / Seller Net Proceeds Calculator. For the neighboring question, explore Rental Property Calculator.
Calculate adjusted basis and amount realized
Track purchase allocation, qualifying acquisition costs, capital improvements and depreciation allowed or allowable. The tax calculation generally compares the amount realized with adjusted basis.
Consider special gain treatment
Unrecaptured section 1250 gain, other recapture rules, state taxes and qualifying tax deferral may matter. Use current IRS guidance or professional review rather than treating all gain as one flat-rate category.
Worked example
Suppose a rental sells for $600,000 with $30,000 of selling expenses and a $350,000 loan payoff. Illustrative sale cash is $220,000. If adjusted tax basis is $400,000, gain before special rules is $170,000, not $220,000.
Open Home Sale / Seller Net Proceeds Calculator and test your assumptions →
Common mistakes and limitations
Do not deduct loan principal from taxable gain or omit prior depreciation from adjusted-basis analysis.
Estimate only; actual payoff statements, taxes, title/escrow charges and local transaction costs can differ.
Frequently asked questions
Is rental sale cash equal to tax gain?
No. Debt payoff changes cash while adjusted basis and amount realized drive gain.
Does depreciation affect rental sale tax?
Yes. Allowed or allowable depreciation generally changes adjusted basis and can affect tax character.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- IRS — Publication 527 (2025), Residential Rental PropertyRental income and expense concepts; operating/rental expense context.
- IRS — Publication 544 (2025), Sales and Other Dispositions of AssetsGain or loss on disposition, depreciation-related gain treatment and like-kind exchange concepts for business and investment real estate.
Read our editorial policy for the scope of these educational methods.