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If you own one or more rental properties and you’re considering selling this year, it’s important to think about the impact capital gains tax on rental property could have on your profit — and on your future goals for that money.

Planning ahead is key to minimizing the hit to your bottom line. So read on for some capital gains tax basics and a few strategies that can help rental property owners lower the tax burden when they decide to sell.

Capital Gains in Real Estate

When you invest in real estate, the expectation (or hope, at least) is usually that when you sell it, you’ll make a nice profit on the deal. It’s one reason so many people have been investing in single-family rental homes in recent years.

You may already have a plan for how you’ll use that profit — to make another investment, for example, or to put toward your retirement. But if the value of the property has increased substantially during the time you’ve owned it, you should also be prepared to hand over some of your gains to the IRS to cover the capital gains tax.

What Is a Capital Gain?

When you determine how much a house is worth, find a buyer, and sell a capital asset for more than you paid for it, the increase in value is referred to as a capital gain.

Capital gains taxes are the taxes you pay on the profit you made because of that increase in value. The tax isn’t applied while you own the asset — in this case a rental property. It hits only when you profit from the sale.

Short-Term vs. Long-Term Capital Gains

The length of time you owned the property before selling it determines whether your profit is a short-term or long-term capital gain. This distinction can make a significant difference in how, and how much, your gains are taxed.

•  Short-term capital gains: If you sell the property after owning it for a year or less, the profit is considered a short-term capital gain, and you’ll be taxed at your ordinary income tax rate for the year you made the sale. Tax rates are always subject to change, but the maximum you could pay for short-term capital gains on a rental property in 2024 is 37%.

•  Long-term capital gains: If you sell after holding the property for more than a year, the profit is considered a long-term capital gain, which makes it subject to preferential capital gains tax rates. Long-term capital gains tax rates are set at 0%, 15%, and 20%, based on your filing status and income.

How Capital Gains Tax Works on Rental Properties

If you’ve ever sold a home, you’re probably familiar with the “home sale exclusion” that eligible home sellers can use to avoid or reduce the capital gains tax on the sale of their primary residence.

Unfortunately, this exclusion typically doesn’t apply to a property used as a rental. (Though there may be an exception if you lived in the property during part of the time you owned it and rented it part of the time.)

Factors Affecting the Capital Gains Tax You May Pay

Without the home sale exclusion, the primary factors that will go into deciding how much you ultimately could be taxed on your gains include:

•   How long have you owned the property?

•   How much did you pay for the property?

•   How much did you spend on improvements to the property?

•   How much did you claim in depreciation?

•   How much did you sell the property for?

•   What was your filing status and taxable income in the year you made the sale?

Recommended: What Is a Home Inspection?

Calculating Capital Gains on Rental Property Sales

These steps can help you estimate the gain on the sale of a rental property:

1.    Start by determining your cost basis (or adjusted cost basis if you made major improvements). This is the price you originally paid for the property, plus money you spent on major improvements (such as additions and upgrades), minus the amount you claimed for depreciation over the years and/or casualty and theft losses.

2.   Next, calculate the capital gain. To do this, subtract your adjusted cost basis from the net proceeds of the sale. (Net proceeds is the amount the seller walks away with after all the closing costs are paid and any home loan balance is paid off.)

Strategies to Minimize Capital Gains Tax on Sale of Rental Property

There are several strategies that can help sellers avoid paying capital gains tax on real estate, either by legally deferring or minimizing their gains.

1031 Exchange

A 1031 exchange is an effective but complicated strategy that allows the owner of an investment property to defer paying capital gains taxes if the sale’s proceeds are reinvested into a replacement or “like-kind” property.
The IRS has several rules regarding the type of property that can be used in the exchange, the timeline, and other details, so you may want to consult with a tax professional if this strategy appeals to you.

Tax-Loss Harvesting

With tax-loss harvesting, you can sell long-term positions in your investment portfolio that have produced capital losses, replace them with similar (but not identical) investments, and then use the loss to offset the gains from the sale of your rental property.

If your losses exceed your gains, you can even use the excess to offset up to $3,000 of ordinary income that year, with any remaining losses carried forward to future years. But again, you’ll likely need some professional help to make sure you’re getting the most out of your investments and that you’re following IRS rules.

Installment Payments

If you prefer to spread out your capital gains tax liability over a period of several years, you may want to look at the benefits of receiving installment payments from the buyer instead of a lump sum. With this method, you would pay capital gains tax only on the portion of the gain you receive each year until the property is paid off.

Convert the Rental Property to Your Primary Residence

If you move into the rental property and make it your primary residence before the sale, you may be able to use the home sale exclusion to reduce your capital gains.

Of course there are IRS rules: To qualify, you must own and occupy the property as a principal residence for two of the five years immediately before the sale. But the ownership and occupancy don’t have to be concurrent, so if you’ve lived in the property as your primary residence for at least 24 of the last 60 months, the gains may qualify for the tax exemption.

Reporting Capital Gains on Rental Properties

The IRS has specific rules for reporting the capital gains on a rental property.

You can start by making sure you get a copy of Form 1099-S. Typically, the person who closes the transaction (real estate attorney, lender, real estate broker title company, etc.) is required to file this form in order to report the sale of a business property. Copies go to the seller and the IRS.

You’ll use Form 1099-S along with other records and receipts to report the capital gains from the sale on your tax return. It’s important to have the original closing documents from your purchase, the real estate purchase contract and closing documents from the sale, receipts related to major improvements, records of any depreciation claimed, and any other relevant paperwork related to the property. This way you (or your tax professional) can more accurately complete the appropriate tax forms and schedules when it’s time to file your tax return.

Filling out these forms can be challenging, especially if it’s your first time selling a rental property and dealing with capital gains. You may want to tap a tax attorney or other professional for the job to ensure that you’re fully compliant with IRS rules.

State-Specific Capital Gains Taxes

Depending on where you reside, you also may have to pay taxes on your capital gains to your state. Most states have a capital gains tax rate between 2.9% and 13.3%, although some states (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming) don’t charge any capital gains tax.

Impact of Capital Gains on Investment Strategy

Smart planning can help investors manage and mitigate the impact of capital gains. Some things to consider include:

•  Timing: If you can put off selling an asset until you’ve held it for at least a year, you can qualify for the lower long-term capital gains tax rate. Delaying also may make sense if you decide to wait until you have investment losses that can offset the profit from the sale of your rental property. Or you could wait for a year when your income is lower so that you’re taxed at a lower rate.

•  Reinvestment opportunities: Reinvesting the profit from your sale into another investment could open up new opportunities to grow your money — and possibly reduce or defer your tax liability (if, for example, you choose to do a 1031 exchange). A financial advisor can help you figure out your next move and what might be a good fit for your goals.

•  Think holistically: How does selling or not selling the rental property fit into your overall investment plan? It might be better to sell for a profit now and pay the taxes than to wait and end up losing money on the sale.

Recommended: Small Business Loans for Rental Property

Common Mistakes to Avoid with Capital Gains Taxes

Ultimately, it’s your responsibility as the seller to make sure your capital gains tax is accurately calculated and paid on time. Getting the amount wrong or failing to pay could result in IRS penalties. Some common mistakes to avoid include:

•  Failing to report capital gains. It’s important to report all capital gains, whether you think you’ll owe taxes on the amount or not.

•  Miscalculating the cost basis. This number is key to determining your gains (or losses) and, therefore, what you’ll owe the IRS.

•  Record keeping errors. Keeping good records can make calculating your capital gains tax easier, and you may need to provide those records and receipts if the IRS asks for documentation.

Working with Tax Professionals

You may have noticed that the word “professional” comes up repeatedly in this guide. That’s because selling a rental property, and the variables that can go into calculating and reporting the gain on your tax return, will be a little different for every seller. There’s no one-size-fits-all process for DIYers to replicate.

And let’s face it, it can be pretty darn difficult to decode the tax code if it isn’t your line of work. If your goal is to legally maximize your tax breaks, it can be helpful to seek out a tax attorney or an experienced tax professional who specializes in real estate issues.

The Takeaway

Understanding how to avoid capital gains on the sale of a rental property, and doing some proactive planning, could make a big difference to your bottom line. And the more money you can keep from the sale, the more you’ll have to put toward your other financial goals — whether they’re personal, for your business, or both.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What are short-term capital gains?

Short-term capital gains are profits from the sale of an asset held for one year or less. (Long-term gains, as you might imagine, are the profits from an asset held longer than a year.)

Can I avoid paying capital gains tax on the sale of a home?

If the home is your primary residence, the IRS allows you to exclude a portion of the capital gain from its sale (up to $250,000, or $500,000 if married filing jointly).

Photo credit: iStock/everydayplus

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q424-009

If you purchased your home with a VA loan but are ready to move on, you may be able to benefit from VA loan assumption. VA loan assumption allows someone else to take over your existing VA loan mortgage — and unlike when you originated your VA loan, the new borrower doesn’t necessarily have to be a military servicemember, veteran, or surviving spouse to qualify. However, your eligibility for this program depends on a few factors, including when you took out your VA loan, and has a few caveats to understand. We’ll explain below.

What Is VA Loan Assumption?

VA loan assumption is a process in which a new borrower can “assume,” or take over, an existing VA mortgage loan. As mentioned above, you don’t have to be eligible to take out a VA loan to be eligible to assume one.

In other words, using VA loan assumption, the homebuyer could take over the existing VA loan rather than securing a brand-new mortgage to buy the home (or buying it in cash). A VA loan has some benefits vs. a conventional loan, and assuming the loan may offer the buyer a lower interest rate (as VA loans often have competitive rates). On the seller side, loan assumption could attract more buyers and help a home sell more quickly.

Eligibility for VA Loan Assumption

Even when a new buyer is taking over a VA assumable loan, the original lender will still want to see proof of the new borrower’s creditworthiness. (After all, repayment of the remainder of the balance will now fall to the new borrower.) Here’s what you need to know about eligibility requirements for VA loan assumption:

For the Assumer

The person taking over the loan still needs to prove their creditworthiness to the lender or VA. The VA doesn’t specify a minimum credit score, but most lenders want to see a score of at least 620.

The assumer’s debt-to-income ratio (DTI) also matters, and should be no higher than 41%. They’ll also need to have sufficient income and be able to pay the VA loan assumption fee, which is 0.5% of the total loan balance — and the difference, if any, between the home’s sale price and the existing loan balance.

For the Seller

Those who took out a VA loan to purchase their home anytime after March 1, 1988, are eligible to sell their home via loan assumption. Be sure to triple-check that your lender will release you from the liability of the loan — otherwise, if the new borrower fails to repay or makes late payments, it could hit your credit score. And once the deal goes through, recheck to be sure your lender has finalized the release. (If you don’t yet have a VA loan but are wondering what is a VA loan and could I get one, briefly: You may be eligible for a VA loan if you are a member of the military, veteran, Reserve or National Guard member, or surviving spouse. You’ll need to get a Certificate of Eligibility from the VA in order to apply for a VA loan.)

Recommended: VA Loan Calculator

Benefits of VA Loan Assumption

As mentioned above, VA loan assumption has benefits on both sides of the table.

For buyers, taking advantage of a VA assumable loan could be very attractive if current mortgage rates are generally higher than the rate on the existing loan. Although creditworthiness still needs to be proven to the lender, if you’re wondering how long does it take to assume a VA loan, rest assured that the underwriting process may be faster since the mortgage is already written.

For sellers, having an assumable loan could expand your pool of potential buyers and help the house sell faster. Transferring a loan may also take less time than going through the process of waiting for the buyer’s new mortgage to pay off your debt.

Risks and Considerations

While there are benefits that can make VA loan assumption worth considering, there are risks and drawbacks to consider, too.

For one thing, while the new borrower doesn’t need to be eligible for a VA loan to take one over, you won’t be able to take out a new VA loan until the loan that’s being assumed is fully paid off. (Normally, you can use a VA loan multiple times to buy a house.) Additionally, you must check with your mortgage lender to ensure you can obtain release of liability for the loan to avoid impacts to your credit score after managing the loan is out of your hands.

On the buyer’s side, assuming a loan may offer better interest rates — but require more cash up front to pay the owner for the equity they’ve stored in the home. Depending on how long the loan has been in place, that total may be higher or lower than a traditional down payment.

VA Loan Assumption Process

If you want to put your home on the market with the option to assume your VA loan, you’ll need to take these steps.

1.    First, reach out to your lender and let them know your intentions. You can also use this opportunity to ask about the release of liability once the loan has been transferred.

2.    In your home sale listing, market the fact that an assumable loan option is available. This may be attractive to many buyers and increase the speed of your sale.

3.    Once you have a prospective buyer, you’ll need to offer full disclosure about the terms of the loan. (If the buyer turns out to be a service member, veteran, or surviving spouse, inquire about a “substitution of entitlement,” which is used when one person who is VA-loan eligible takes over a loan from another.)

4.    At the time of sale, you’ll need to wait for the borrower to be qualified by your lender or the VA to ensure they’re deemed creditworthy enough to take over the loan. Closing will also involve the cash payment to make up the difference to the agreed-upon purchase price.

5.    Once the loan is transferred, ensure you have documentation of your release of liability from the VA or your lender.

VA Funding Fee for Loan Assumption

While VA loans are generally low-cost ways to buy a home, they do come with a funding fee — and assumed loans have one too. However, the fee is only 0.5% in the case of assumed VA loans, which is far lower than the 1.25%-3.3% it might cost to take out such a loan in the first place.

Recommended: VA Loan Buyers Guide

Release of Liability

We’ve said it before, but it bears repeating: As the seller, you’ll want to make sure you have a document stating your liability for the loan has been released once the loan transfer is completed. Otherwise, you may see impacts on your credit score for financial behaviors you have no control over.

Comparison: VA Loan Assumption vs. New VA Loan

Here’s how VA loan assumption vs. new VA loans compare, at a glance.

The Takeaway

Assuming a VA loan can be a valuable way for borrowers to save money on interest (and enjoy a shorter repayment period) while also allowing veterans to market their home for sale in an attractive way.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

FAQ

Who can assume a VA loan?

Anyone who can prove their creditworthiness to the lender and afford to pay the difference can assume an available VA loan. However, if that party would not be qualified to take out their own VA loan in the first place, the original lender will not be able to take out a new VA loan until the existing one is paid off by the new borrower.

Does the assumer need to be a veteran?

The assumer of a VA loan does not need to be a veteran. However, if they are not a veteran, the original VA loan borrower will not be able to take out a new VA loan for themselves until the original loan has been paid off.

Can any VA loan be assumed?

Any VA loan issued after March 1, 1988 is eligible for assumption.

Photo credit: iStock/SethCortright

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q424-001

A cardholder name is the name of the account holder or authorized user, printed or embossed on a debit or credit card. It helps ensure that transactions are linked to the correct account. However, it may not be the same as the individual’s legal name.

While it is typically no longer common for a merchant to verify a cardholder name with a person’s identification, many merchants do reserve the right to refuse a purchase if the name on the card does not match a person’s actual name. Learn more about cardholder names and the role they play in your financial life.

Definition and Importance of Cardholder Name

When you open a bank account, you will enter your personal information, including your legal name, as part of the account opening process. Depending on the type of account that you open, your bank may send you a credit or debit card to more easily make transactions on your account. In most cases, the name on your account will be embossed or printed on your card — this is referred to as your cardholder name.

While most of the time, your cardholder name is also your full and legal name, that is not always the case.

•   You may use a nickname (say, Jon Smith vs. Jonathan F. Smith) or other variation of your name. For instance, people with a hyphenated last name may not use both of those names.

•   In some cases, you may change your name after opening the account (often in cases of a marriage or divorce).

•   It may be that you made a typo or misspelled your name when you opened the account. (You can typically correct that and have a new corrected card issued to avoid problems.)

In most cases, with bank accounts and credit card accounts, you must use your legal name. This is part of efforts to prevent bank fraud and money laundering. That said, in some instances, you may be able to use, say, a preferred first name vs. your legal first name.

What’s more, merchants do reserve the right to deny a purchase if there’s a mismatch between the name on the card and a person’s name (say, on their ID) when they are using a debit card or a credit card.

For these reasons, it can be a wise move to make sure your cardholder name matches your legal name.

Cardholder names are important because they help align the transactions made with your card and your account, whether that may be your checking account (in the case of a debit card) or your line of credit (with a credit card).

Where to Find Your Cardholder Name

The most obvious place to find your cardholder name is on the front of your credit or debit card itself. It is often embossed (or raised), but many cards today show the cardholder name with the letters printed vs. being raised.

If you have lost your card or don’t have immediate access to it and want to check your cardholder name, you may also be able to find it in your online banking account.

Common Issues With Cardholder Names

While it’s common for a cardholder’s legal name to be their cardholder name, there are a few times when this might not be the case.

Misspellings and Variations

Occasionally you may apply for a new credit or debit card with a variation of your full legal name. You may also make a typo on your application, causing the bank to send you a card with a misspelling of your name. While technically you may be able to use your debit or credit card with a name that is not your full and legal name, it’s wise to contact your bank or financial institution to get a replacement card with your correct name.

Married Names and Name Changes

Legally changing your name (such as when you get married or divorced) may cause your cardholder name to be different from your new legal name. While it is common for people to contact their financial institution to update the name on their account (and debit or credit card), it may not be required.

It can be a smart idea to have your cardholder name updated to match your new legal name at your earliest convenience. To update the name on your account as well as your cardholder name, contact your bank or credit union (or your credit card issuer). They can usually change the name on your account as well as ship you a new card with your updated name.

Recommended: Savings Account Interest Calculator

Cardholder Name vs. Authorized User

Many credit card and other financial accounts allow the primary account holder to add authorized users to their account. A fact about debit cards and credit cards is that an authorized user is someone who can use the card to make purchases but ultimately is not responsible for the account or the debt.

Here are some points to know about this arrangement:

•   Generally, each authorized user who is added to an account will receive their own card with their own cardholder name.

•   In some cases, an authorized user’s card will have the same card number as the primary account holder, while other times each authorized user has a different credit or debit card number.

Regardless, when adding an authorized user to an account, be sure you trust the person to use the card responsibly as it’s your personal finances on the line.

Protecting Your Identity: Best Practices

Identity theft is a real and growing concern, with the Federal Trade Commission (FTC) receiving more than one million reports of this problem via its website in 2023. It’s smart to take precautions to safeguard your personal details to avoid this scenario and related bank fraud.

One best practice for protecting your identity is to make sure to shield your credit or debit card from unauthorized use. Avoid giving out your debit card’s personal identification number, or PIN, and don’t lend your cards to people.

If you’re a frequent online shopper or place orders by phone, you might look into using what are known as virtual card numbers to further protect your account. Many credit cards offer the ability to generate these virtual card numbers which are good for a one-time use. They are typically created via a browser extension or an app.

Recommended: How to Write a Check

The Takeaway

Most credit and debit cards have the name of the account holder or authorized user embossed or printed on the card, as a way to ensure that only the correct person with privileges uses the card. While often the cardholder name is the full and legal name of the account holder, that is not always the case if, say, you have recently changed your name or you use a variation of your name. In these instances, you may want to update your card so it reflects your legal name.

Are you shopping for a bank account with a debit card and other features to suit your financial needs? Check out all that SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Can my cardholder name be different from my legal name?

Yes, the name on your card may differ from your full and legal name and you may be able to still use your card to make purchases or withdraw money. However, it can be wise to have your card updated if, say, you changed your name when you got married or if your name was accidentally misspelled. Your bank or card issuer can revise your account information and send you a new card with an updated cardholder name.

What should I do if my cardholder name is incorrect?

While you may be able to make purchases with the card and be legally liable for any purchases made to your account, even if the name is not your full and legal name, it’s wise to update it. You can contact your bank, credit union, or other financial institution. They will be able to send you an updated card, usually at no cost to you.

How does my cardholder name affect online purchases?

When using a debit card or a credit card online, you will usually be asked to enter your cardholder name during checkout. You may also need to enter your name to register as a customer. While in most cases your legal name and your cardholder name match, if not, you’ll want to make sure to type in the name that is actually printed on your credit or debit card when you are entering your payment information. If the name on your card differs from your legal name, you may want to have your cardholder name updated to align with it.

Photo credit: iStock/Ridofranz

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOBNK-Q324-112

Microdeposits are small amounts of money, usually less than $1, temporarily added to your account. They are generally used to confirm that a bank account is valid and able to accept funds. Another reason a microdeposit might be used is as a security feature when you are linking your bank account to another bank account or to a third-party service, such as a budgeting app.

You are typically asked to verify the amount of a microdeposit to ensure that you are the account holder. This can help reduce the risk of fraudulent activity on a bank account. Learn more about microdeposits and how they can impact your banking activity.

Defining a Microdeposit

Microdeposits are a type of deposit, or funds added to your bank account, but in this case in very small amounts. Here are more details about how they work.

Small Temporary Deposits

The term microdeposit describes one or more small transfers of funds, each typically less than $1. They are usually sent by one bank to another bank when an account holder tries to link two bank accounts, such as for transferring money between them or perhaps for overdraft protection. They may also be sent when you are validating that you want your bank account linked to a particular service.

These deposits are usually temporary; you aren’t actually being paid for anything. After the microdeposits are sent, the account holder typically verifies their amounts. The funds are usually withdrawn by the issuing bank within a few days.

Purpose and Use Cases

One of the biggest reasons banks use microdeposits is to verify that a particular person is the owner of a specific bank account. Microdeposit verification is often used when someone tries to link a bank account to a type of account at a different bank. Using microdeposits allows the bank to authenticate that the person requesting the linkage actually is the owner of the account. This helps to reduce fraud and ensure the safety and security of accounts.

Recommended: Savings Account Calculator

How Microdeposits Work

The way microdeposits work is typically straightforward. If you enter your bank’s routing and account number to link your account to another bank or third-party service, you may receive microdeposits. Generally two microdeposits are sent, each for an amount under $1.

Once you receive the microdeposits in the bank account that you are trying to link, you will go back to the other site and verify the microdeposits by typing in their amount. Shortly after the microdeposits are sent (generally within a couple of days), the bank will then withdraw the money that was deposited. This ensures that there is no net change in your account’s value after the microdeposit process is complete.

Why Microdeposits Are Used

One of the primary reasons that banks use microdeposits is to prevent bank account fraud. These deposits help to verify that you are the legal owner of a bank account you are trying to link to or otherwise use. Without this step, it might be possible for an unauthorized person to link your account to another account and then possibly withdraw money from your account or commit other fraudulent activity.

Identifying and Confirming Microdeposits

A crucial step to the microdeposit process is identifying and confirming the microdeposits. It usually takes a few days for the microdeposits to show up in your account. Once you see them, you can return to the app or bank account where you initiated the linking process. By entering the amount of the microdeposits, you usually complete the microdeposit confirmation process.

One thing to watch out for is if you receive microdeposits you are not expecting. If you see microdeposits in your account when you have not tried to link it to another account, contact your bank’s customer service or fraud department. You may be targeted by a fraud or phishing attack, meaning that someone may be attempting unauthorized access to your account.

Recommended: How to Transfer Money From One Bank to Another

Potential Drawbacks and Limitations

While they are quite common, there are a few potential drawbacks and limitations of the microdeposit process:

Delayed Transactions and Clearance Times

The microdeposit process typically takes a couple of days for the deposits to arrive and be verified. This means that linking your bank account to another account or service is unlikely to happen instantaneously or even in a single day.

Account Restrictions and Holds

If you see microdeposits hit your account and you haven’t tried to link your account to any other bank or third-party app, you’ll want to contact your bank’s fraud or customer service department right away. This is because it may mean that someone else has tried to link your bank account to another account or service. This is one of the common bank scams, and your account may need to have some restrictions put in place.

Confusion and Misunderstandings

Seeing microdeposits in your checking account may cause confusion, even if they are part of a process you initiated. You might well see one of these little deposits and spend time asking yourself who would be sending you 17 cents or whatever the amount may be. Understanding what microdeposits are and perhaps noting in your calendar when they are likely to hit can help clear up any confusion or misunderstandings.

Recommended: 10 Personal Finance Basics

Scams Using Microdeposits

If you see microdeposits in your account when you have not tried to link your account, you may be the victim of a mobile deposit scam or other type of fraud. Here’s how these typically work:

•   Scammers may try to link your account to another account, generating microdeposits in your account.

•   They then try to get you to authenticate the deposits via a verification message.

•   If you do confirm the amounts (thinking the request is legitimate), they may be able to link your account to one they control, with the goal of withdrawing money from your account.

If you ever see microdeposits in your account that you didn’t initiate, follow these steps:

•   Do not verify the microdeposit.

•   Do not click on any links or downloads connected with the microdeposit and verification request.

•   Contact your bank’s security or fraud department immediately.

•   You might also let the Federal Trade Commission at ftc.gov know of this scam so they can take appropriate steps.

Protecting yourself from this kind of scam is important as fraud rises, with 2.6 million Americans enduring some form of fraud in 2023, according to the FTC.

Recommended: How to Write a Check

The Takeaway

Microdeposits (sometimes referred to as micro deposits or micro-deposits) are small deposits to your account, generally used to verify that your account is valid and owned by you. Microdeposits are often two small, temporary deposits (usually under $1) that, when confirmed, allow two accounts or your account and a service to be linked. Though microdeposit verification is usually a security measure, unexpected microdeposits can be a signal of a scam in progress, so be wary.

If you’re looking for a banking partner that makes accessing and growing your money easy, see what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are microdeposits refunded or removed from the account?

Yes, microdeposits are generally refunded from your account, usually a few days after they are deposited. One example might be if you receive two microdeposits, for $0.11 and $0.34. A few days after the deposits, the bank will generally withdraw the money, usually with one withdrawal transaction. In this case, it would be a withdrawal for $0.45. This means that the microdeposit process has no long-lasting effect on your overall balance.

Do microdeposits affect my available balance or account status?

Microdeposits don’t have a huge impact on your available balance, because of how small they are. You will see a very small increase in your available balance due to the microdeposits, but that will go away after a few days. That is because the bank that put the microdeposits into your account will also withdraw that money after a few days, leaving your account balance as if there had been no deposits.

What if I can’t locate or identify the microdeposit amounts?

If you can’t locate or identify the microdeposit amounts, it may mean that there was a problem with the linking process. It’s possible that you had a typo or other error when inputting your routing and account numbers. Keep in mind also that it can take a couple days for these microdeposits to show up in your account. If it’s been a few days, you might try to restart the linking process or contact your bank’s or the third-party service’s customer service department.

Photo credit: iStock/SrdjanPav

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBNK-Q324-078

Checks may not be as common as they once were, but there’s one kind of check that remains a gold standard in large financial transactions: a cashier’s check.

Also known as an official check, a cashier’s check is backed by bank funds rather than personal funds. This provides assurance to the recipient that the money is available and ready to go. Due to their security, cashier’s checks are often required for high-value transactions or when certainty of payment is critical. For example, you may need a cashier’s check when making a large purchase or putting a down payment on a home.

To get a cashier’s check, you need to provide the full amount of the check, plus any fee, up front to the bank. This allows the bank to stand behind the check. Read on to learn more about this important financial tool.

What Is a Cashier’s Check?

A cashier’s check is a check that is issued by the bank or credit union, rather than the payer. Unlike a personal check, which is drawn from the check writer’s account, a cashier’s check is drawn from the bank’s own funds.

When you get a cashier’s check, the bank moves the money from your bank account into its own and guarantees the payment to the recipient. This makes cashier’s checks one of the most secure payment methods available, as the recipient can be sure that the check will not bounce due to insufficient funds.

A cashier’s check includes details like the bank’s name, the amount, and the recipient’s name, all printed by the bank, which adds an extra layer of security.

Recommended: A Complete Guide to Ordering Checks

When Do You Need a Cashier’s Check

Cashier’s checks are often used for transactions where immediate availability of funds is required or when the seller wants an extra guarantee that the funds are legitimate. You may need to use a cashier’s check in the following situations:

•  High dollar payments: Due to their security, cashier’s checks are often used when making large transactions such as buying a car, a home, a boat, or fine art. When there is a lot of money at stake, sellers often prefer cashier’s checks because they reduce the risk of bounced checks or fraud.

•  Real estate transactions: Cashier’s checks are commonly requested for down payments or closing costs on homes and other types of property. Even if you’re only entering a rental contract on a home, a landlord or property management company may ask for a cashier’s check to cover the first and last month’s rent.

•  Online marketplace purchases: Cashier’s checks are frequently used for payments between individuals that don’t know each other. For instance, if you are buying a used car from a stranger who listed it online, the seller may request a cashier’s check to make sure they will get paid.

How and Where to Get a Cashier’s Check

Banks and credit unions typically provide cashier’s checks to their customers (and sometimes to non-customers). Here’s how to get a cashier’s check.

•  Visit your bank or credit union: Typically, you need to be a bank account holder to get a cashier’s check at a bank or credit union. However, some institutions offer cashier’s checks to non-account holders if they pay the full check amount in cash up front.

•  Provide the necessary details: To issue a cashier’s check, the bank will request the name of the payee (the recipient of the check) and the exact amount you wish to pay. They may also ask for any information (such as the reason for the check) to print in the memo line. You’ll likely also need to present a government-issued ID, such as a driver’s license or passport.

•  Pay the check amount and (if applicable) fee: The bank will typically withdraw the check’s amount from your checking account, along with any fee they charge for issuing the check (more on that below). If you do not have an account with the issuing bank, you may need to pay in cash or with a debit card.

•  Receive the cashier’s check: Once the bank processes your request, they will print the cashier’s check with the payee’s name and the amount. The teller will then sign the cashier’s check and give it to you.

While you typically need to purchase a cashier’s check in person, some banks (traditional and online) will allow customers to order cashier’s checks through their website or mobile app. In this case, the check is typically mailed directly to the recipient.

How Much Do Cashier’s Checks Cost?

The cost of obtaining a cashier’s check varies by bank or credit union, but fees typically range from $5 to $15. Some institutions may waive this fee for premium account holders or customers who meet certain criteria, such as maintaining a certain minimum balance. Fees may be higher for non-account holders.

Cashier’s Checks and Safety

One of the main reasons people use cashier’s checks is their high level of security. Since the funds are guaranteed by the bank, there is little risk that the check will be returned for insufficient funds. These checks also have some extra features, like watermarks and at least one bank employee signature, that make them harder to counterfeit. In addition, you don’t have to worry about sharing your personal checking account information with the recipient, since the check isn’t drawn from your account.

Despite their safety and reliability, however, cashier’s checks are not immune to fraud. They are sometimes forged and used by criminals to solicit payments from unsuspecting victims. One popular scam (called the “job scam”), for example, is when a person is offered a job and then receives a fake cashier’s check for a too-high amount as prepayment. They are then asked to return the excess payment as a gift card. Later, they learn that the cashier’s check was counterfeit.

These tips can help you avoid cashier’s check scams:

•  Beware of any unexpected windfalls being paid out by a cashier’s check.

•  If you sell items online and get paid by cashier’s check, it’s wise to wait for the check to fully clear before providing any goods.

•  Be cautious of overpayment scams where a cashier’s check is used to pay for something, and you are asked to send the excess funds back.

•  Verify the issuing bank by contacting them directly and ensuring the check is legitimate.

Recommended: How to Verify a Check Before Depositing

How Cashier’s Checks Compare to Certified Checks and Money Orders

Cashier’s checks look similar to other types of secure payments, such as certified checks and money orders. While there are some similarities between all three payment types, there are also distinct differences. Here’s a look at how they compare and why you’d choose one over the other.

Cashier’s Checks vs Certified Checks

A certified check is a personal check that the payer’s bank has confirmed is backed by sufficient funds and bears an authentic signature. Unlike a cashier’s check however, a certified check is drawn from the payer’s funds, not the banks.

Typically, the bank will set aside the funds needed for the check and won’t allow them to be withdrawn for any other reason. This makes a certified check more secure than a personal check. A special stamp and a signature from a bank representative shows that the check has been certified by the bank.

While certified checks offer a higher level of security than personal checks, they do not provide the same guarantee as cashier’s checks because the bank isn’t responsible for covering the funds directly. Cashier’s checks are generally considered more secure and often preferred over certified checks for larger transactions.

Cashier’s Checks vs Money Orders

Like a cashier’s check, money orders are guaranteed funds. You purchase a money order with cash or a cash equivalent (such as a debit card), assuring that it cannot bounce. Unlike cashier’s checks, however, money orders can be purchased at many different locations. This includes banks as well as post offices, grocery stores, drug stores, convenience stores, and check-cashing stores. Also, fees tend to be lower, often between $1 and $5.

Another difference is that money orders have limitations — they are often capped at no more than $1,000, making them less suitable for large transactions like buying a car or making a down payment on a house. Money orders are often used for smaller transactions or for people who don’t have access to traditional banking services.

The Takeaway

While checks have largely been replaced by digital payments, cashier’s checks are still the payment of choice in many large transactions. These checks are backed by, and paid out by, the bank; you supply the bank with the funds in advance. Just keep in mind that some online banks (including SoFi) do not offer cashier’s checks.

Understanding how cashier’s checks work, and how they compare to certified checks and money orders, can help you choose the right payment method for your needs.

FAQ

How can I avoid cashier’s check fraud?

To help reduce the risk that you’ll be a victim of cashier’s check fraud:

•  Only accept cashier’s checks from trusted sources or individuals.

•  Contact the issuing bank directly to verify that the check is legitimate.

•  Avoid transactions with overpayment or refund requests, as these are common scams.

•  If you’re selling something to a stranger, wait for the cashier’s check to fully clear before providing goods or services, as it can take several days for a bank to verify funds.

What happens if a cashier’s check is lost or stolen?

If a cashier’s check is lost or stolen, contact the issuing bank immediately to report the issue. You will need to provide details like the check amount and payee. The bank will likely require you to file a declaration of loss and may impose a waiting period (often 90 days) before reissuing the check. During this time, the bank verifies that the original check has not been cashed. Some banks charge a fee for reissuing a lost or stolen cashier’s check.

Does a cashier’s check have your name on it?

Yes, a cashier’s check typically has your name on it as the purchaser. It will also include the bank’s name, the payee’s name (the person or entity you’re paying), and the exact amount of the check. Your name is included to ensure the recipient knows who issued the payment and allows for easier record-keeping on both sides of the transaction.

Does a cashier’s check come directly out of your account?

When you request a cashier’s check, the bank withdraws the full amount from your account before issuing the check. Once the funds are withdrawn, the check is backed by the bank’s own funds, providing a guarantee to the recipient.

If you do not have an account with the issuing bank, you may need to provide cash or pay with a debit card.

What info is needed for a cashier’s check?

To obtain a cashier’s check, you need to provide the following information:

•  Payee’s name: The person or entity to whom the check will be made payable.

•  Exact amount: The dollar amount you want to transfer.

•  Your identification: A government-issued ID to verify your identity.
In addition, you’ll need to make sure sufficient funds are available in your account (or provide cash) to cover the check amount and any fee.

Photo credit: iStock/TARIK KIZILKAYA

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOBNK-Q324-086