Tax Implications of Selling Rental Property in Georgia: What Landlords Need to Know

Selling a rental property in Georgia can put significant money in your pocket — but it also triggers tax obligations that catch many landlords off guard. Between federal capital gains tax, Georgia state income tax, and depreciation recapture, the IRS and the Georgia Department of Revenue will both want their share of your proceeds.

Understanding these taxes before you sell helps you plan effectively, explore strategies to reduce your tax bill, and make informed decisions about timing and selling method. This guide breaks down the major tax implications of selling rental property in Georgia so you know exactly what to expect.

Important disclaimer: This article is for informational purposes only and does not constitute tax advice. Tax laws are complex and change frequently. Always consult a qualified CPA or tax attorney for advice specific to your situation.

Federal Capital Gains Tax on Rental Property

When you sell a rental property for more than your adjusted basis (more on that below), you owe capital gains tax on the profit. The rate you pay depends on how long you owned the property.

Short-Term Capital Gains (Owned Less Than 1 Year)

If you sell a rental property you've owned for less than one year, your profit is taxed as ordinary income at your regular federal income tax rate. For 2025-2026, federal income tax brackets range from 10% to 37% depending on your total taxable income.

Short-term capital gains treatment is the most expensive scenario for sellers, which is why most financial advisors recommend holding investment property for at least one year before selling.

Long-Term Capital Gains (Owned More Than 1 Year)

If you've owned the rental property for more than one year — which is the case for most landlords — your profit is taxed at the more favorable long-term capital gains rates:

Most landlords selling rental property in the Atlanta metro area will fall into the 15% long-term capital gains bracket. High-income earners may also owe an additional 3.8% Net Investment Income Tax (NIIT) on top of the capital gains rate, bringing their effective federal rate to 18.8% or 23.8%.

Georgia State Capital Gains Tax

Georgia does not have a separate capital gains tax rate. Instead, capital gains are taxed as ordinary income under Georgia's state income tax brackets. For 2026, Georgia uses the following graduated rate structure:

In practice, almost all of the capital gain from a rental property sale will be taxed at Georgia's top rate of 5.75%. When combined with the federal rate, most Georgia landlords selling rental property face a combined capital gains tax rate of approximately 20.75% (15% federal + 5.75% state), or higher for those subject to the NIIT.

Depreciation Recapture: The Tax Landlords Forget About

This is the tax that surprises most landlords. If you've been claiming depreciation deductions on your rental property — and you should have been, since the IRS requires it whether you actually claimed it or not — you'll owe depreciation recapture tax when you sell.

What Is Depreciation Recapture?

When you own rental property, the IRS allows you to deduct a portion of the building's value each year as depreciation (residential rental property is depreciated over 27.5 years using the straight-line method). These deductions reduce your taxable rental income each year — which is great while you own the property.

But when you sell, the IRS "recaptures" those deductions. The total depreciation you claimed (or should have claimed) over the years is taxed at a special rate.

Section 1250 Depreciation Recapture Rate

Under Internal Revenue Code Section 1250, depreciation recapture on real property is taxed at a maximum federal rate of 25% — higher than the standard 15% long-term capital gains rate. This applies to the portion of your gain that equals the total depreciation you claimed during your ownership.

Example: How Depreciation Recapture Works

Let's say you purchased an Atlanta rental property for $200,000 ten years ago (with $160,000 allocated to the building and $40,000 to the land). Over 10 years, you claimed approximately $58,180 in depreciation ($160,000 / 27.5 years x 10 years).

Your adjusted basis is now: $200,000 - $58,180 = $141,820

If you sell for $280,000, your total gain is: $280,000 - $141,820 = $138,180

That gain is split into two pieces for tax purposes:

In this example, you'd owe approximately $14,545 in federal depreciation recapture tax plus $12,000 in federal capital gains tax, for a total federal tax bill of roughly $26,545 — before Georgia state taxes.

This is why understanding depreciation recapture before you sell is critical. Many landlords are surprised when their CPA tells them they owe 25% on a significant chunk of their proceeds.

Calculating Your Taxable Gain

Your taxable gain is not simply the difference between what you paid and what you sold for. Here's the formula:

Taxable Gain = Sale Price - Selling Expenses - Adjusted Basis

Where:

• Sale Price is the gross amount the buyer pays for the property
• Selling Expenses include agent commissions, closing costs, transfer taxes, and legal fees (these reduce your taxable gain)
• Adjusted Basis = Original purchase price + capital improvements - accumulated depreciation

Capital improvements that increase your basis include things like a new roof, HVAC system, major renovations, or additions. Routine repairs and maintenance do not count. Keep records of all improvements — they directly reduce your taxable gain.

Strategies to Reduce Capital Gains Tax on Rental Property

Several legal strategies can help you minimize or defer the tax bill when selling a rental property in Georgia.

1031 Exchange (Like-Kind Exchange)

A 1031 exchange, named after Internal Revenue Code Section 1031, allows you to defer all capital gains and depreciation recapture taxes by reinvesting the proceeds into another qualifying investment property. The key rules:

• The replacement property must be of "like kind" (any real estate for real estate qualifies)
• You have 45 days from closing to identify replacement properties
• You must close on the replacement property within 180 days
• A qualified intermediary must hold the funds — you cannot touch the money
• The replacement property must be of equal or greater value to defer the full gain

A 1031 exchange doesn't eliminate the tax — it defers it until you eventually sell the replacement property without doing another exchange. But many investors use serial 1031 exchanges throughout their careers and never pay capital gains tax.

Installment Sale

Instead of receiving all proceeds at closing, you can structure an installment sale where the buyer pays you over time. This spreads the taxable gain across multiple tax years, potentially keeping you in a lower tax bracket each year.

Opportunity Zone Investment

If you reinvest capital gains into a Qualified Opportunity Zone Fund within 180 days of the sale, you can defer and potentially reduce your capital gains tax. If you hold the Opportunity Zone investment for 10 years or more, any appreciation on the new investment is tax-free.

Primary Residence Conversion (Section 121 Exclusion)

If you convert your rental property to your primary residence and live in it for at least 2 of the 5 years before selling, you may qualify for the Section 121 exclusion — up to $250,000 in capital gains tax-free ($500,000 for married couples filing jointly).

However, there are important limitations. The portion of the gain attributable to periods after 2008 when the property was used as a rental (known as "nonqualified use") does not qualify for the exclusion. And depreciation recapture still applies regardless. This strategy requires careful planning and is only practical if you're willing to actually move into the property.

Harvesting Capital Losses

If you have capital losses from other investments (stocks, other real estate), you can use those losses to offset the capital gains from your rental property sale. Timing the sale to coincide with realized losses in your portfolio can significantly reduce your net tax bill.

How Your Selling Method Affects Your Tax Bill

Here's something many landlords don't consider: how you sell your rental property doesn't change the tax rules, but it can significantly change your net proceeds after taxes.

Whether you sell through an agent, FSBO, to a cash buyer, or through a hybrid retail program, the capital gains tax rate and depreciation recapture rate are the same. But the sale price and the selling expenses are different — and both directly affect your taxable gain.

Consider two scenarios for the same Atlanta rental property:

Scenario A: Fast Cash Sale

• Sale price: $200,000
• Selling expenses: $2,000 (minimal closing costs, no commissions)
• Taxable gain: Higher taxes, but you close in 7-14 days with zero hassle

Scenario B: Maximum Value Hybrid Sale

• Sale price: $260,000 (after Vlancia funds repairs and sells at full retail)
• Selling expenses: $15,600 (6% commission on the retail sale)
• Taxable gain: Higher sale price means more tax — but your net proceeds are still significantly greater

The math almost always favors a higher sale price, even with a larger tax bill. If Scenario B generates $60,000 more in gross proceeds, and the additional tax is roughly $15,000, you still net approximately $30,000 more after taxes and selling costs.

At Vlancia Home Buyers, we walk landlords through both scenarios — our Fast Cash option and our Maximum Value (Hybrid) option — so you can see the numbers side by side and choose the path that makes the most sense for your situation.

Work with a CPA Before You Sell

We cannot stress this enough: talk to a CPA or tax professional before you sell your rental property. The difference between a well-planned sale and an unplanned one can be tens of thousands of dollars in unnecessary taxes.

A good CPA can help you:

• Calculate your adjusted basis and estimated tax liability before you list the property
• Determine if a 1031 exchange makes sense for your situation
• Time the sale to minimize your overall tax bracket
• Identify deductions and capital improvements you may have overlooked
• Structure the transaction to maximize your after-tax proceeds

If you don't have a CPA, ask your local real estate network for referrals. Many CPAs in the Atlanta area specialize in real estate transactions and can provide a pre-sale tax analysis.

Ready to Sell Your Atlanta Rental Property?

If you're a Georgia landlord ready to sell your rental property and you want to understand your options before making a move, we're here to help. At Vlancia Home Buyers, we work with more tired landlords than any other type of seller — we understand the financial considerations, including tax planning, that go into making this decision.

Get your free, no-obligation offer and we'll walk you through the numbers for both our Fast Cash and Maximum Value options. No pressure, no obligation — just a straightforward conversation about what your property is worth and how much you'll actually take home.

Call us at (404) 490-1526 or submit your property info online. We respond within 24 hours.

Learn more about how our process works.