Selling a rental property takes the same escrow as any home sale, plus four steps up front: read the lease, value the house both as a home and as an investment, get a tax estimate, and decide whether to sell it vacant or with the tenant in place. Across the Sacramento metro a listing took about 45 days to go under contract in September 2026, so plan on roughly two to four months from the first lease review to closing, longer if you wait for a lease to end.
You own a rental house in or around Sacramento, you've decided to sell (or you're close), and you want the steps in order so nothing about the tenant, the tax or the paperwork catches you out.
Selling a rental property at a glance
| Steps that come before the listing | Lease review, valuation two ways, tax estimate, vacant or occupied |
|---|---|
| Entry notice for showings | Written notice; 24 hours presumed reasonable (Civil Code 1954) |
| Tenant's deposit | Transferred to the buyer with notice, or returned with an accounting (Civil Code 1950.5) |
| California withholding at closing | 3 1/3% of the price unless an exemption applies (FTB Form 593) |
| Federal tax form for the sale | Form 4797, Sales of Business Property |
| Metro days to pending | About 45 (Sacramento metro, September 2026) |
Selling a rental property: the steps at a glance
Most of the work in selling a rental happens before the sign goes up. The table puts the 12 steps in order with what each one decides; the sections after it take them one at a time.
| Step | What it decides | When |
|---|---|---|
| 1. Read the lease | Who can buy and when the house can be vacant | Before anything else |
| 2. Value it two ways | Whether to sell to a homebuyer or an investor | Week 1 |
| 3. Estimate the tax | What you keep, and whether to exchange instead | Week 1 to 2 |
| 4. Vacant or occupied | The buyer pool and the notice you'll need | Week 2 |
| 5. Notify the tenant | Cooperation for showings, or the move-out date | Before listing |
| 6. Showings | How the house is seen without breaking entry rules | While listed |
| 7. Disclosures | What the buyer learns, and when | Listing to acceptance |
| 8. Offer and escrow | Price, terms, closing date | Acceptance |
| 9. Inspections and repairs | Final price after credits | First weeks of escrow |
| 10. Deposit and lease transfer | Who owes the tenant what | Before closing |
| 11. Closing and Form 593 | California withholding, payoff, your proceeds | Closing |
| 12. Report the sale | Federal and California tax on the gain | Next tax return |
Before you list the rental property: lease, value and tax
These four steps decide the shape of the sale. Get them wrong and you can end up listing a house you can't show, pricing it for buyers who can't move in, or finding out about the tax bill in escrow.
1. Read the rental lease and the tenant file
Pull the signed lease, any renewals, the deposit amount and the date the tenant moved in. You need four answers: is it a fixed term or month to month, when does it end, has the tenant stayed 12 months or more, and did they get the AB 1482 exemption notice? A fixed-term lease generally binds the buyer until it ends. Twelve months of occupancy brings in just-cause rules if the house is covered by AB 1482, and the AB 1482 guide for Sacramento owners explains when a house is exempt.
2. Value the rental property two ways
A rental has two prices. One is what a buyer who'll live there pays, judged on recent sales of similar houses nearby. The other is what an investor pays, judged on the rent, the property tax they'll owe at their own purchase price, and the repairs they'll need. Owner-occupant buyers usually need the house vacant, and they often pay more for it. Investors buy with the tenant in place and price the lease, the rent and the condition. Knowing both numbers tells you whether ending the tenancy is worth it. A rental valuation for a Sacramento house gives you both.
3. Estimate the tax on the rental sale before you list
A rental sale can trigger federal capital gains tax, tax on the depreciation you took (up to 25% federally), the 3.8% net investment income tax above the IRS income thresholds, and California income tax on the whole gain at ordinary rates. Ask a CPA for a number before you list, while you can still change course: a 1031 exchange, a sale in a lower-income year, or keeping the house. The capital gains tax on a California rental guide walks through the math.
4. Decide whether to sell the rental vacant or occupied
Vacant opens the house to every buyer, allows staging and simple showings, and costs you the rent while it's empty. Occupied keeps the rent coming and limits you mostly to investors. If the lease ends within a few months, waiting for it can be the easy answer. If it doesn't, the options are selling with the tenant, giving notice where the law allows it, or paying the tenant to move out by agreement.
Marketing a rental property with a tenant in it
If the tenant stays during the sale, they control much of how it goes. A cooperative tenant makes showings easy and the house look cared for; an unhappy one can make it hard to sell at all. Treat them as part of the sale.
5. Tell the tenant about the rental sale, in writing
Talk to the tenant before the listing goes live, then follow up in writing. Explain the timeline, how showings will work and what happens to their lease and deposit. If the plan is to end the tenancy, the notice has rules of its own: 30 or 60 days depending on how long they've lived there, a narrow 30-day exception tied to a sale to a buyer who'll live in the house, and just-cause rules for covered houses. Read the California notice to vacate guide before you serve anything.
6. Schedule showings of the rental under Civil Code 1954
California lets a landlord enter to show the house to prospective buyers, during normal business hours, after reasonable written notice; 24 hours is presumed reasonable. Once you've told the tenant in writing that the house is for sale, Civil Code 1954 lets you or your agent give later showing notices orally for 120 days, as long as you leave written evidence of each entry inside. The law also says a landlord can't abuse the right of access. Group showings into set windows and keep the tenant's schedule in mind. The guide to selling a house with tenants covers who buys an occupied house and how.
From offer to escrow on a Sacramento rental property
Once you have an accepted offer, the sale runs like any other California escrow, with a few extra documents because of the tenant.
7. Complete the rental's seller disclosures
California requires a Transfer Disclosure Statement on most house sales, along with a Natural Hazard Disclosure Statement and, for houses built before 1978, the federal lead-based paint disclosure. A landlord fills these in from what they know, including what tenants have reported. Keep repair records and tenant complaints handy; they're often what the forms ask about. The guide to California's rules for a rental sale explains each form.
8. Negotiate the offer and open escrow on the rental
Compare offers on more than price: financing, the closing date, contingencies and whether the buyer takes the house with the tenant. An investor's offer may arrive with conditions about the lease. Escrow opens when the contract is signed. If a tenancy is ending under the 30-day sale exception, the date escrow opens starts a 120-day limit on serving that notice.
9. Handle inspections and repair requests on the rental
The buyer's inspector will need access, which means another entry notice to the tenant. Rentals often show wear that owner-occupied houses don't, and buyers ask for repairs or credits. A pre-listing inspection lets you price known problems in from the start. Sacramento-metro sales closed at about 99.6% of list price in August 2026, so on a well-priced house the final number is mostly set by these requests.
10. Transfer the tenant's deposit and the rental lease
When you sell an occupied rental, Civil Code 1950.5 gives you two choices for the deposit: transfer what's left after lawful deductions to the buyer and notify the tenant (with the buyer's name, address and phone), or return it to the tenant with an itemized accounting. Before the transfer, you give the buyer a written statement of the deposit, any deductions and which choice you made. Expect the buyer to ask for a tenant estoppel certificate confirming the rent, the deposit and the lease terms.
Closing the rental property sale: Form 593 and Form 4797
The last two steps are about money: what escrow sends the state at closing, and how you report the sale afterwards.
11. Sign closing papers and Form 593 for the rental
At closing, escrow pays off your loan, collects selling costs and, for California real estate, withholds tax for the Franchise Tax Board. The default is 3 1/3% of the sales price. You complete Form 593 before closing to claim an exemption (for example, a loss or zero gain, or a qualifying 1031 exchange) or to choose the alternative calculation, which applies your tax rate to an estimated gain instead. Escrow sends the money and the form to the FTB by the 20th of the month after closing, and you claim it as a credit on your California return. The cost of selling a rental in Sacramento shows how withholding and costs affect your cash at closing.
12. Report the rental sale on Form 4797
A rental house held more than a year and sold at a gain is reported on IRS Form 4797, Sales of Business Property. The gain flows from there to Schedule D, where the part from depreciation is taxed at up to 25% and the rest at long-term capital gains rates. Your California return reports the same sale, and California taxes all of it as ordinary income. Keep the closing statement, your purchase records, improvements and depreciation schedules for your CPA. The the tax on depreciation you took explains the 25% part.
What you net from a Sacramento rental property sale: an example
Owners are often surprised by the gap between the price and the check, because escrow takes California's withholding on top of the payoff and costs. This example uses assumed numbers; swap in your own.
| Line | Amount | Note |
|---|---|---|
| Sale price | $470,552 | Zillow's typical Sacramento value, September 2026 |
| Loan payoff | -$250,000 | Assumed |
| Selling costs | -$30,000 | Assumed: commission (negotiable, set in your listing agreement), escrow, title, transfer tax, credits |
| Form 593 withholding | -$15,685 | 3 1/3% of the price, with no exemption or alternative calculation |
| Cash to you at closing | $174,867 | Before income tax on the gain |
The $15,685 is a prepayment of your California tax, credited when you file. If your real California tax on the gain is lower, you get the difference back as a refund; if it's higher, you owe the rest. Federal tax isn't withheld at closing, so set aside cash for it, and for estimated tax payments if your CPA recommends them. If your gain is small, the alternative calculation on Form 593 can shrink the withholding to match it.
Documents to gather before selling a rental property
Collecting these in the first week saves days in escrow, and several of them shape the price an investor will offer. Ask your property manager for anything you don't hold yourself.
- The lease and every renewal, with the AB 1482 exemption notice if you gave one.
- A rent ledger for the last 12 months, showing late or missed payments.
- The deposit record: amount, date received and any deductions.
- Repair and maintenance records, including tenant requests and how they were answered.
- Permits for work done while you owned it, and anything done without one.
- Your purchase closing statement and receipts for improvements, which raise your basis.
- Depreciation schedules from your past tax returns, for the 25% part of the gain.
- Utility, HOA and service contracts the buyer may take over or you'll cancel.
If you'd like help putting the sale in order, Justin can walk through the lease and both valuations with you. Start with selling your Sacramento rental.
How to avoid capital gains tax when selling a rental property
You can't make the tax disappear on a straightforward sale, but four legal routes reduce it or push it out. Each has a catch, so take them to a CPA before you sign a listing agreement.
A 1031 exchange for the rental
A like-kind exchange under section 1031 defers federal tax if you sell the rental and buy other investment real estate through a qualified intermediary, within strict deadlines. California follows it, but if you buy outside the state, California keeps track of the deferred gain with FTB Form 3840 each year. The catch: you're still a landlord, just of a different property. See the 1031 exchange guide for California sellers.
Section 121 if you lived in the rental
If the house was your main home for two of the five years before the sale, you may exclude up to $250,000 of gain ($500,000 married filing jointly). It doesn't cover the depreciation, and time as a rental before you moved in can reduce it. This mostly helps owners who moved out recently, which the guide on whether to rent or sell your house covers.
An installment sale of the rental
If you carry the buyer's financing and receive at least one payment after the year of sale, IRS Publication 537 lets you report part of the gain as each payment arrives. California withholding then applies to the down payment and to the principal in later payments. The catch: you're now the lender, with the buyer's default risk.
Holding the rental property for your heirs
Under IRS Publication 551, inherited property generally takes a basis equal to its fair market value at the date of death, which can wipe out the gain built up during your lifetime. The catch: you keep being a landlord, and estate planning needs an attorney.
Selling a rental property: common questions
How long does it take to sell a rental property?
Plan on two to four months from the first lease review to closing for a typical Sacramento rental. Homes across the Sacramento metro took about 45 days to go under contract in September 2026, and escrow usually adds about a month. Waiting for a lease to end, or giving 30 or 60 days' notice, can add more. Selling with the tenant in place avoids that wait but narrows buyers to investors.
How long do you have to own a rental to avoid capital gains?
No holding period makes a rental's gain tax-free. Owning it more than a year gets long-term federal rates instead of ordinary rates, and depreciation is taxed at up to 25%. California taxes the whole gain as ordinary income however long you've held it. The only exclusion is section 121, which needs you to have lived in the house two of the last five years.
Is it ever a good idea to sell a rental property?
Yes, when the house no longer pays you enough for the money and time it ties up. Common reasons are rent that doesn't cover the costs, a big repair coming, a tenant problem, or needing the equity. In Sacramento, values rose 2.1% in five years to September 2026, so holding for appreciation alone has paid little lately. The guide on whether to sell walks through it.
Can I sell my rental property while a tenant lives there?
Yes. The lease stays in force through the sale and the buyer becomes the landlord. You can show the house during normal business hours with proper written notice, and the deposit is either transferred to the buyer with notice to the tenant or returned with an accounting. Most buyers of occupied houses are investors who price the rent and the lease terms.
What tax form do I use to report the sale of a rental property?
Federal: IRS Form 4797, Sales of Business Property, for a rental held more than a year, with the result carried to Schedule D. California: your Form 540 and California Schedule D where the treatment differs. Escrow also files FTB Form 593 at closing to report the California withholding, which you claim as a credit when you file.
Do I have to pay California withholding when I sell a rental?
Usually. Escrow withholds 3 1/3% of the sales price for the Franchise Tax Board unless you certify an exemption on Form 593, such as a loss or zero gain, a price of $100,000 or less, or a qualifying 1031 exchange. You can also elect the alternative calculation based on your estimated gain. The withholding is a prepayment, credited against your California tax.
Should I sell my rental property vacant or with the tenant?
Vacant usually brings the higher price because owner-occupant buyers can bid, but you lose rent while it's empty and must end the tenancy lawfully first. With the tenant in place, the rent keeps coming and showings are harder, and buyers are mostly investors pricing on the rent. Getting a valuation both ways tells you whether the vacancy is worth it.
Sources
- California Civil Code 1954 (entry and showing notice)
- California Civil Code 1950.5 (security deposits and transfer on sale)
- California Civil Code 1946.1 (notice to terminate; 30-day sale exception)
- California Civil Code 1102 (Transfer Disclosure Statement)
- California Civil Code 1103.2 (Natural Hazard Disclosure Statement)
- US EPA: real estate disclosures about lead-based paint
- FTB: 2026 Instructions for Form 593, Real Estate Withholding
- FTB: real estate withholding
- FTB: 2025 Instructions for Form FTB 3840
- IRS: Instructions for Form 4797 (2025)
- IRS Topic 409: capital gains and losses
- IRS: net investment income tax
- IRS Publication 537: installment sales
- IRS Publication 551: basis of assets
- IRS Publication 523: selling your home
- IRS: like-kind exchanges, real estate tax tips
- Zillow Research: metro market data (September 2026)
Reviewed by Justin Vierra
Justin reviewed this page for accuracy on October 28, 2026. Figures come from the sources listed above. Our research process.
Justin Vierra is a Sacramento Realtor® with GUIDE Real Estate and Principal of the Vierra Group who sells rental homes for their owners, with tenants in place or vacant. He spent six years in Midtown property management before he began selling homes in 2010.
- Since 2010Licensed in California, DRE #01880488
- 6 yearsManaging Midtown rental property before he sold homes
- 447Vierra Group team sales on Zillow, 26 in the past 12 months
- 440+Career sales, as reported by Justin
- Six years in property management: Midtown Sacramento: older buildings, multifamily property, maintenance and tenants
- Principal, Vierra Group: His team at GUIDE Real Estate, 3001 I Street, Sacramento
- Sacramento Real Producers: Top 250 agent for 2025, as reported by Justin
Realtor®, DRE #01880488. Vierra Group, GUIDE Real Estate, 3001 I St, Suite 200, Sacramento, CA 95816. General information, not legal, tax or financial advice.
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