Selling your rental property isn’t just about finding the right buyer—it also has tax consequences. Many Wilmington landlords overlook these costs until the closing table, where surprises can cut into their profits. Understanding the tax implications can help you plan smarter and keep more of your hard-earned money.
1. Capital Gains Tax
If you sell your Wilmington rental for more than you bought it, you’ll likely pay capital gains tax on the profit.
- Short-term capital gains (if owned less than 1 year) are taxed as regular income.
- Long-term capital gains (if owned more than 1 year) are taxed at 0%, 15%, or 20%, depending on your income bracket.
Example:
- Bought property for $150,000.
- Sold for $250,000.
- Profit = $100,000 (subject to capital gains tax).
2. Depreciation Recapture
Landlords claim depreciation deductions each year. When you sell, the IRS “recaptures” those deductions, taxing them at up to 25%. This often surprises landlords who expected lower taxes.
3. 1031 Exchange
If you want to avoid immediate taxes, you can do a 1031 exchange, which lets you roll the profit into another investment property.
- Must use a qualified intermediary.
- Replacement property must be identified within 45 days and purchased within 180 days.
This strategy is common among serious investors in Wilmington and across North Carolina.
4. State Taxes
North Carolina charges a flat 4.5% state income tax, which applies to property sales. Don’t forget to factor this into your bottom line.
5. Selling Costs and Deductions
The good news? Some costs reduce your taxable gain, including:
- Realtor commissions.
- Closing costs.
- Certain repairs made to sell the home.
6. How Cash Buyers Affect Taxes
Selling to a cash buyer doesn’t eliminate taxes, but it can speed up the process. A quick closing allows you to plan ahead and set up a 1031 exchange more efficiently if you choose.
Final Thoughts
Taxes can eat into your profits if you’re not prepared. Always consult a CPA before selling your Wilmington rental. If you’re looking for a fast, tax-aware sale, Cape Fear Cash Offer can help you close quickly so you can move forward confidently.