Capital Gains Tax on Rental Property Calculator

How capital gains tax works when you sell a rental

Selling a rental property at a profit triggers two taxes, not one. First, the depreciation you deducted over the years is "recaptured" — the portion of your gain equal to that depreciation is taxed as unrecaptured Section 1250 gain at a maximum rate of 25%. Second, any remaining profit is a long-term capital gain, taxed at 0%, 15%, or 20% depending on your taxable income. High earners may also owe the 3.8% Net Investment Income Tax (NIIT), and most states tax the gain as ordinary income on top. The calculator above handles all four layers at once; the sections below show the rules behind the numbers.

The math runs in four steps:

1. Net sale price = sale price − selling costs (agent commissions, title, transfer taxes, legal fees). See how selling costs reduce capital gains.
2. Adjusted basis = purchase price + capital improvements − total depreciation claimed (or that you were allowed to claim — the IRS reduces basis either way).
3. Total gain = net sale price − adjusted basis.
4. Split it: the amount up to your accumulated depreciation is recaptured at up to 25%; the remainder is a long-term capital gain at your 0/15/20% rate. Add state tax and, if applicable, the 3.8% NIIT.

2026 long-term capital gains tax rates

Your rate on the capital-gain portion (property held more than one year) depends on your total taxable income and filing status. For the 2026 tax year:

Property held one year or less is a short-term gain, taxed at your ordinary income rate instead — usually much higher. See short-term vs long-term capital gains and the full breakdown in capital gains tax rates on real estate.

Worked examples

Example 1 — typical sale, 15% bracket. You bought a rental for $300,000, claimed $50,000 in depreciation, and sell for $400,000 with $24,000 in selling costs, no state tax or NIIT. Net sale price is $376,000; adjusted basis is $250,000; total gain is $126,000. The first $50,000 is recaptured at 25% = $12,500; the remaining $76,000 is taxed at 15% = $11,400. Total tax ≈ $23,900, leaving after-tax proceeds of about $352,100 before any mortgage payoff.

Example 2 — high earner with NIIT and state tax. Same sale, but you're a single filer with income over $545,500 (20% bracket) in a state with a 5% rate, and your income exceeds the $200,000 NIIT threshold. Recapture is still $12,500. The $76,000 gain is taxed at 20% ($15,200) + 5% state ($6,300 on the full $126,000 gain, as most states don't honor the federal recapture rate) + 3.8% NIIT on the $126,000 ($4,788). The tax bill climbs to roughly $38,800. The jump from Example 1 shows why NIIT on depreciation recapture matters for high earners.

Example 3 — 0% bracket. A retired couple filing jointly with $80,000 taxable income sells a long-held rental with $30,000 of depreciation and a $40,000 capital gain. The $30,000 recapture is still taxed (up to 25%), but the $40,000 capital-gain portion may fall entirely in the 0% bracket — a reminder that recapture is never 0%, even when your capital gains rate is.

How to reduce or defer the tax

• 1031 exchange. Reinvest the proceeds into another investment property and defer both the recapture and the capital gains tax. Walk through a full 1031 exchange example, weigh the disadvantages of a 1031 exchange, or model it in the 1031 exchange calculator.
• Installment sale. Spreading the sale price over several years can keep you in a lower capital gains bracket, though most depreciation recapture is still taxed up front.
• Offset with losses. Capital losses and net operating losses can absorb part of the gain — see tax-loss harvesting for real estate and whether losses offset recapture.
• Opportunity Zones. Rolling the gain into a Qualified Opportunity Fund defers and can partly eliminate it — see Opportunity Zone tax benefits.
• Time the sale into a lower-income year to drop from the 20% to the 15% (or even 0%) bracket.
• Step-up at death. Heirs inherit the property at its fair market value, erasing the built-in gain — see step-up in basis on a rental.

Common mistakes

• Forgetting recapture. Many sellers budget only for capital gains tax and are surprised by the 25% recapture bill — see depreciation recapture vs capital gains.
• "I didn't claim depreciation, so I owe no recapture." The IRS recaptures depreciation you were allowed to take, whether you claimed it or not.
• Omitting capital improvements from basis. A new roof or renovation raises your basis and lowers the gain — keep those receipts.
• Assuming the primary-residence exclusion wipes it out. Converting a rental to your home gives only a partial Section 121 exclusion, and recapture is never excluded.

Frequently asked questions

Related guides & calculators

• Depreciation Recapture Calculator — isolate the recapture piece.
• 1031 Exchange Calculator — defer the whole tax.
• Rental Property Depreciation Calculator — the deductions that get recaptured.
• Depreciation recapture example — a step-by-step walkthrough.
• Capital gains on a second home — how vacation properties differ.
• Recapture on inherited property — what heirs owe.