How to Sell a Rental Property in California: Taxes, Tenants and Timing

Selling a rental isn’t like selling the home you live in. Your tenants have rights that survive the sale, your tax bill includes the depreciation you took over the years and, in much of Alameda County, local rent and eviction rules sit on top of state law. This guide walks California landlords through the decisions in order: occupied or vacant, showings, leases and deposits, taxes and the timing of a 1031 exchange.

Occupied or vacant: the first decision

Buyers who plan to live in the home will want it empty, and a vacant, cleaned-up unit usually shows better. But ending a tenancy so you can sell isn’t simple in California:

Under the Tenant Protection Act (AB 1482), once a tenant has lived there 12 months, most tenancies can end only for a just cause, and selling the property isn’t one.
The no-fault causes, such as an owner or close relative moving in, taking the property off the rental market or a substantial remodel, require relocation help equal to one month’s rent under state law.
Where a city has its own just-cause ordinance, it generally applies instead, and several Alameda County cities require larger relocation payments. In Oakland, for example, the base payment for a no-fault eviction starts at $8,293.13 for a studio or one-bedroom as of July 1, 2026. Our guide to renting out your house lists the local rules city by city.
A single-family home or condo that isn’t owned by a corporation, a REIT or an LLC with a corporate member can be exempt from AB 1482, but only if the tenants received the exact written notice the law requires, and local rules can still apply.

Some owners negotiate a voluntary move-out instead, paying the tenant to leave. Cities regulate these buyouts too. Oakland gives tenants 25 days to cancel a move-out agreement, and an agreement for less than the city’s relocation amount can be voided.

Selling occupied avoids all of that, but it narrows your buyers mostly to investors and prices the property on its current rent and lease terms.

The Ellis Act: leaving the rental business

California’s Ellis Act lets an owner go out of the rental business, but only by withdrawing every unit in the building. Cities can set the withdrawal date 120 days after the owner notifies them, or a year for tenants who are 62 or older or disabled and have lived there at least a year. They can also require relocation payments and restrict re-renting the units for years afterward. It’s a major step to take with a landlord-tenant attorney, not a shortcut to a vacant house.

Showing an occupied rental

California lets you enter to show the unit to buyers with reasonable written notice, and 24 hours is presumed reasonable. Showings have to be during normal business hours unless the tenant agrees otherwise. Once you’ve told the tenant in writing, within the past 120 days, that the property is for sale, notice of each showing can be given in person or by phone, and you have to leave written evidence of the entry inside the unit.

Tenants who don’t want to move have little reason to keep the place show-ready. Keep showings few and grouped together, and treat cooperation as something worth thanking.

What transfers to the buyer

The buyer takes the property subject to the existing leases, rents and tenant protections. Rent caps and just-cause rules stay with the units.

Security deposits need care. When you sell, California requires you to do one of two things within a reasonable time:

Transfer each deposit, minus any lawful deductions, to the buyer, then notify the tenant by personal delivery or first-class mail of the transfer, any claims against the deposit, the amount and the buyer’s name, address and phone number.
Return the deposit to the tenant with an itemized accounting.

Before closing, give the buyer a written statement of each deposit, any deductions and which option you chose. If deposits aren’t handled properly, the buyer can be held responsible for repaying them too, so buyers and escrow officers will ask. Within 15 days after closing, the new owner has to give tenants the name and contact information for the person who manages the property and receives rent.

Expect buyers to ask for a rent roll, copies of every lease and often tenant estoppel certificates, in which each tenant confirms their rent, deposit and lease terms. Ask for those early.

Taxes: depreciation catches up with you

Your taxable gain is the sale price, minus selling costs, minus your adjusted basis. Adjusted basis is roughly what you paid plus improvements, minus the depreciation you claimed or could have claimed. That last part surprises people: depreciation reduces your basis even in years you didn’t deduct it.

The gain tied to depreciation on the building is taxed at up to 25% federally.
The rest is taxed at the long-term capital gains rates if you owned it more than a year.
Higher earners may also owe the 3.8% net investment income tax.
California taxes all capital gains as ordinary income, with no lower rate.

California also requires escrow to withhold 3 1/3% of the sale price and send it to the Franchise Tax Board, unless an exemption applies or you elect a withholding amount based on your estimated gain. The amount withheld is credited on your California return. If you once lived in the property, part of the gain may still qualify for the home-sale exclusion. A tax professional can estimate the whole bill before you list.

1031 exchange timing

A 1031 exchange can defer the tax if you reinvest in other investment real estate. The deadlines don’t bend:

Identify replacement property within 45 days after your sale closes.
Receive the replacement property within 180 days, or by your tax return’s due date (including extensions) for the year of the sale, whichever comes first.

That second rule catches late-year sellers: close in November, and your return can be due before day 180 unless you file an extension. Exchanges are usually set up with a qualified intermediary before closing, because if you receive the sale money before you get the replacement property, the IRS treats the deal as a sale rather than an exchange. If the replacement property is outside California, the FTB requires an information return every year until the deferred gain is taxed.

Selling with the tenants in place

If you’d rather not navigate notices, showings and relocation rules, you can sell to a buyer who takes the property as it is. EZ Home Offer buys rentals across Alameda County with tenants in place. We usually make a written cash offer within 24 hours, charge no fees or commissions and cover typical closing costs, and we can close in as little as 3 days once title is clear, a firm date that helps with 1031 planning. Our offer will be below what a vacant, updated property might bring, which is the trade for skipping the work. See our page on selling a rental with tenants, and if you own a multi-unit building, our guide to selling a duplex or small apartment building.

Sources

General information about California rules as of October 3, 2026, not legal, tax or financial advice. Laws change and every situation is different, so check the details with an attorney, CPA or other professional.