Understanding Capital Gains Taxes on Real Estate in Virginia

In 2016, I purchased a home in Virginia for $340,000. After three years of living in it, I decided to rent it out for six years. Now, the market value has soared to approximately $600,000! Curious about the financial implications of selling my home, I utilized an AI calculator to analyze how much I might pocket from the sale. Here’s the breakdown of my calculations, and I’d love your input!

1. Calculating Capital Gains

Capital gains are determined by the formula:

Capital Gains = Net Sale Proceeds – Adjusted Cost Basis

(1) Net Sale Proceeds

The net sale proceeds are calculated by subtracting various costs from the sale price:

• Sale Price: $600,000
• Transaction Costs: Listing agent commission at 6% ($600,000 × 6% = $36,000), along with other fees (like transfer taxes) estimated at around $10,000.

Net Sale Proceeds = $600,000 – $36,000 – $10,000 = $554,000

(2) Adjusted Cost Basis

The adjusted cost basis is determined by:

• Purchase Price: $340,000
• Capital Improvements: Assuming none (if renovations occurred, please specify).
• Cumulative Depreciation: ($8,200 × 6 years = $49,200)

Adjusted Cost Basis = $340,000 – $49,200 = $290,800

(3) Capital Gains Calculation

Now, we can calculate the total capital gains:

Capital Gains = $554,000 – $290,800 = $263,200

2. Federal Capital Gains Tax

For properties held over one year, long-term capital gains tax applies, with rates dependent on your 2025 income level:

• 0%: Taxable income below $47,025 (single) or $94,050 (married filing jointly)
• 15%: $47,025 – $518,900 (single) or $94,050 – $583,750 (married filing jointly)
• 20%: Higher income brackets

Assuming I am single with an annual income of $100,000 (considered middle income), I would fall under the 15% tax rate:

Capital Gains Tax = $263,200 × 15% = $39,948

For depreciation recapture tax (25% rate on the rental property’s depreciation portion):

Depreciation Recapture Tax = $49,200 × 25% = $12,300

Total Federal Tax = $39,948 + $12,300 = $52,248

3. Virginia State Income Tax

Virginia taxes capital gains at the same rate as ordinary income, with 2025 rates as follows:

• 2%: Taxable income $0 – $3,000
• 3%: $3,001 – $5,000
• 5%: $5,001 – $17,000
• 5.75%: Over $17,001

Assuming my total taxable income is approximately $363,200 (including capital gains), the highest tax bracket applies:

State Capital Gains Tax = $263,200 × 5.75% = $15,134

4. Total Tax Estimate

Lastly, let’s sum up the taxes:

• Federal Tax: $52,248 (capital gains tax + depreciation recapture tax)
• Virginia State Tax: $15,134

Total Tax = $52,248 + $15,134 = $67,382

After purchasing the home for $340,000 and selling it for $600,000 ten years later, my net gain is approximately $487,000 after taxes! 🏡💵 What are your thoughts on this calculation? Feel free to share your insights!