Selling a rental property isn’t the same as selling a primary residence.
You’ll face unique challenges, like managing existing leases and dedicating extra time to prepare the property for sale.
And taxes?
They come with their own set of rules.
Whether you’re a seasoned investor or selling your first rental, the goal is often the same: to sell quickly and for the best price.
That might feel like a major hurdle, but with the right approach, you can turn those challenges into opportunities.
Here’s everything you need to know about selling a rental property.
Is the property leased or vacant?
The occupancy status of a rental property can significantly affect its sale price and how quickly it sells.
Having tenants brings numerous laws into play and can shape how prospective buyers perceive the listing.
Here’s what to keep in mind when selling a tenant-occupied or vacant rental property.
Selling a leased property
Selling a property with tenants requires careful planning and a clear understanding of your options.
If your rental property has a long-term lease (usually four months or more remaining), start by reviewing the lease agreement and checking your state’s landlord-tenant laws.
Why?
Because some tenants may have the first right of refusal.
This means you’re legally required to give them the chance to buy the property before listing it.
Even if this isn’t required, you can still let your tenant make an offer.
But this significantly limits your profit potential since your buyer is a single tenant (or maybe a few if you’re selling a multi-family property).
It’s best to expand your buyer pool to include those who want to buy a home as their primary residence.
The best way to do this is to sell the property without a lease.
If you have long-term tenants, you can negotiate an early lease termination by offering a buyout or relocation assistance.
For month-to-month leases or leases expiring soon, the process is much simpler.
You can wait for the lease to end, which opens the property to a broader audience.
No matter the scenario, it’s important to follow local laws and rules from the Department of Housing and Urban Development (HUD) when selling a tenant-occupied property.
Most states require 30-60 days’ notice to tenants before listing.
You’ll also need to notify tenants 24-48 hours before showings and open houses while they’re still living in the property.
Selling a vacant property
Selling a rental property without tenants radically simplifies the process.
You don’t have to offer the property to a tenant or follow state-imposed timelines.
Showings happen on your schedule, without needing to coordinate around tenant availability or provide advance notice.
Your buyer pool will also be much larger without a lease agreement in place.
This increases competition among buyers, which can help you sell faster and for a higher price.
Plus, you have the freedom to stage the property to appeal to your target buyer.
Staging highlights the home’s best features and helps buyers imagine themselves living there.
That’s why staged properties often sell quicker and at higher prices.
And it’s one of the most overlooked advantages of selling an unoccupied property.
The bottom line?
Selling a rental without a lease is easier, faster, and gives you more opportunities to maximize your profits.
Steps to selling your rental property
Whether the home is vacant or occupied, a little strategic planning will help you secure the best price in the shortest amount of time.
Here are the key steps to guide you through the process of selling your rental property.
1. Organize and declutter the property
Creating a clean and clutter-free space should be your first priority when preparing to list your rental property.
The goal is to make the home look as spacious and inviting as possible.
You want potential buyers to envision the space as theirs — whether they’ll be living there or renting it out to tenants.
Start by:
- Clearing and organizing counters and surfaces
- Removing excess furniture and decor to open up the layout and depersonalize living areas
- Deep-cleaning critical spots like kitchens, bathrooms, windows, and floors.
This process is much easier if the property is vacant.
But if tenants are present, here’s how you can still make it work:
- Encourage renters to keep shared areas clean and decluttered.
- Provide storage bins for stowing personal items during showings.
- Give tenants plenty of notice before showings so they can tidy up.
A well-organized property helps you secure the best possible offer by appealing to more buyers.
2. Find the right real estate agent
The right real estate agent can help you maximize profits when selling your rental property.
The wrong one?
They’ll leave you feeling short-changed at the closing table.
The key is finding a listing agent with the right experience and skills to navigate the unique challenges of selling a rental property.
Here’s what to look for…
Experience selling rental properties: Choose an agent who understands the ins and outs of selling leased (or recently leased) properties. They’ll be able to guide you through the process and help with tenant communications, like scheduling showings or open houses for a tenant-occupied rental.
Relevant local expertise: Look for an agent with experience selling homes where the property is located and in a similar price range. Their local knowledge will help them market your rental property and set the right listing price to attract serious buyers.
Recommended by sellers: Take the time to check what their past selling clients have to say. Read online reviews and ask for referrals to confirm they have a history of happy clients, especially other landlords or rental owners.
Low dual agency rate: Avoid real estate agents with a high dual agency rate, where they represent both the buyer and seller in the same transaction. These agents prioritize earning double commission from one sale over a seller’s best interests. Instead, choose someone who consistently puts sellers first.
No contract commitment: Look for an agent who allows flexibility in your agreement. A good agent will include an out clause in your listing contract so you can part ways if you’re unhappy with their performance. This ensures they stay motivated to deliver results.
3. Decide between selling as-is or making upgrades
Deciding whether to make repairs or sell as-is is one of the most important choices when trying to maximize profits on a rental sale.
Selling as-is can speed up the process and reduce your out-of-pocket expenses.
But skipping improvements may lower your return on investment (ROI), especially if you’re selling a distressed property.
So how do you decide whether to replace flooring, fix a leaky foundation, or update a bathroom?
The key is to weigh the cost of repairs against the potential ROI.
Start with a pre-listing home inspection to uncover any major or minor issues that could impact your sale.
An inspector will highlight potential red flags, giving you a clear picture of what buyers or investors might notice.
Then, consult with your agent to identify which repairs or updates will add the most value.
Discuss how each improvement could enhance your asking price and estimate the cost of each.
Weighing the costs against the benefits will help you make the best decision for your property and goals.
4. Stage the property
Can staging really help you sell a rental property faster and for more money?
Absolutely — especially if the property is vacant.
Staging transforms an empty space into one that feels warm and inviting, helping buyers envision its potential.
A professional stager can collaborate with you and your agent to design a layout that appeals to your target audience.
This is particularly important when selling a rental property in a slower market, where standing out from competing listings is critical.
But staging can help you sell faster and secure a higher price in any market.
Even better?
Staging often increases the sale price enough to offset the upfront cost.
And if your agent doesn’t cover it, staging expenses can typically be used as a tax write-off.
If the property is tenant-occupied, showcasing it in its best light can be more challenging.
But you can still improve its appeal with a few strategic adjustments:
- Rearrange furniture to create a more open and inviting layout.
- Add neutral decor, brighter lighting, or small accents to freshen the space.
- Offer to store excess furniture or personal items to reduce clutter and make the home feel more spacious.
You may need to incentivize tenants to cooperate, but these small changes can make a significant impact.
Staging — even on a smaller scale — can help move your rental property off the market quicker and for top dollar.
5. Complete the required seller disclosures for your rental
Before you list your rental for sale, you must disclose any known issues or potential liabilities with the property.
These seller’s disclosures are required by law.
More importantly, they build trust with your potential buyers and limit the risk of any legal disputes in the sales process.
Ultimately, buyers are less likely to back out of the sale later when they feel fully informed from the start.
Specific disclosure requirements vary by state, but they generally include things like:
- Past repairs
- Known damages and outstanding maintenance issues
- Existing tenant lease information, such as agreement details, rental payment history, and security deposits
- Rental income.
Work with an agent to make sure you complete all necessary forms and share all required information for your state and municipality.
6. Price your rental property strategically
The list price of your rental property doesn’t just influence its sale price — it also determines how quickly it moves off the market.
Pricing too high can easily scare away buyers and extend your time on the market.
Asking for too little might speed up the sale but leave you with less money in your pocket.
So how do you find the sweet spot?
Work with an experienced and reputable real estate agent to determine the ideal list price.
A good Realtor will perform a comparative market analysis (CMA), using recent comparable sales to set a competitive asking price.
They’ll also evaluate the unique features and condition of your rental property to establish its fair market value.
From there, you can:
- Consider your ideal net proceeds and expected tax obligations when determining the final price.
- Factor in rental income if the property has an existing lease. While selling with tenants narrows your buyer pool to investors, guaranteed rental income could boost the property’s perceived value to potential landlords. You can also use this tactic to highlight the income potential when selling a vacation rental.
- Focus on the potential for rent increases or long-term returns, which can make your property more attractive to investors.
- Highlight the property’s potential as a short-term rental when applicable — especially if you’re selling an Airbnb rental.
Selling a rental property and taxes
Taxes are a key driver in determining your profits and deciding when to sell a rental property.
The more you understand how taxes work, the better positioned you’ll be for a strong return.
Here’s what you need to know about the key tax implications of selling a rental property.
Do taxes apply when selling a rental property?
Yes, you may need to pay capital gains taxes when you sell a rental property at a profit.
The IRS applies either short or long-term capital gains taxes to your net profits (more on how profits are calculated shortly):
- Short-term capital gains: These apply if you’ve owned the property for less than a year. You’ll be taxed at your ordinary income tax rate, which ranges from 10% to 37%, depending on your tax bracket.
- Long-term capital gains: These apply if you’ve owned the property for more than a year. The tax rate is 0%, 15%, or 20%, based on your total taxable income.
Notice the difference?
The tax rates are much higher for short-term gains, particularly if you’re in a higher tax bracket.
That’s why it’s usually a good idea to hold on to a rental property for at least a year before selling.
Doing so can significantly reduce your tax liability.
Keep in mind that many states also impose capital gains taxes, which vary depending on where the property is located.
That’s just the starting point for understanding and managing your tax obligations.
The calculations get more complex when you consider other factors, like depreciation recapture and your total tax liability.
How rental property depreciation works
Calculating taxes on the sale of a rental requires a little extra math to account for depreciation claimed during the time you owned the investment property.
The IRS applies this rule even if you didn’t claim depreciation.
Here’s how it works:
The IRS allows you to depreciate the building portion of your rental property’s value over 27.5 years using the straight-line method.
This means you can deduct 3.636% of the building’s value annually.
For example, if you purchased a rental home for $200,000, and $160,000 of that value is attributed to the building (excluding land), you could deduct $5,818 per year, totaling $58,180 over 10 years.
These deductions reduce your taxable income during the years you own the property, lowering your annual tax liability.
But here’s the catch…
When you sell the property, the IRS reclaims some of those tax savings through “depreciation recapture.”
The total depreciation you’ve taken (or could have taken) is taxed as ordinary income, capped at 25%.
In the example above, you’d owe up to $14,545 in depreciation recapture taxes on the $58,180 deducted.
Depreciation recapture can raise your tax bill, reduce your profits, and impact your overall return.
So don’t sell your rental property without accounting for it.
Calculating tax liability for your rental
The IRS combines your unrecaptured gains with your regular capital gains to determine the total taxes owed on a rental property sale.
Let’s continue with our example to see how this works.
The IRS determines your total capital gains on a rental property sale by subtracting your adjusted cost basis from the sale price.
Here’s how to calculate the adjusted cost basis:
- Original purchase price: $200,000
- Add sale closing costs: $25,000 (agent commissions, lender fees, title fees, etc.)
- Add property improvements: $50,000 (major updates and renovations, excluding regular maintenance)
- Subtract depreciation claimed: $58,180
- Total adjusted cost basis: $216,820
If the property sells for $400,000, your realized gain would be $183,180 ($400,000 – $216,820).
This gain is taxed in two parts:
- Unrecaptured gains: $58,180 (taxed as ordinary income, up to 25%)
- Capital gains: $125,000 ($183,180 – $58,180, taxed at your long-term capital gains rate of 0%, 15%, or 20%, depending on your taxable income)
Now, let’s calculate the potential tax liability for someone in the top tax bracket:
- Unrecaptured gains tax: $14,545 (25% of $58,180)
- Capital gains tax: $25,000 (20% of $125,000)
- Total tax liability: $39,545
But that’s not the whole picture.
State taxes may also come into play.
The good news?
There are ways to avoid capital gains on rental property.
For example:
- If you’ve lived in the property for at least two of the last five years, you may qualify for the primary residence exclusion, which allows you to exclude up to $250,000 ($500,000 for married couples) of capital gains from taxes.
- A 1031 exchange lets you defer capital gains taxes by reinvesting the proceeds from your sale into another rental property within 180 days.
Maneuvering through these options can be tricky.
But a tax professional can help you identify the best strategies to minimize your tax burden and maximize your return.
Next steps
Selling a rental property can be complex — especially if you’re aiming for the best possible return.
You’ll need to navigate tenant obligations, develop effective marketing strategies, and account for potential tax implications.
On top of that, preparing the property with strategic repairs, a deep clean, and thoughtful staging adds another layer of work.
It’s a lot to handle on your own.
But selling your rental property at the right time can be a highly profitable move.
The right real estate agent can simplify the process and be an invaluable ally in helping you maximize your profits.
Seeking assistance to guide you through the process?
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