How do I calculate the capital gains tax on selling a rental property?

Start with your sale price and subtract selling costs to get the net sale price. Then subtract your adjusted basis, which is the original purchase price plus capital improvements minus all depreciation taken or allowable. The result is your total gain. The portion equal to depreciation taken is taxed as unrecaptured Section 1250 gain at up to 25 percent federally. The remainder is taxed at long-term capital gains rates of 0, 15, or 20 percent, plus the 3.8 percent net investment income tax if your income exceeds the threshold, plus your state's income tax on the full gain.

How much depreciation have I taken on my rental?

Residential rental property is depreciated over 27.5 years on the building value only, not the land. A common rule of thumb is that 75 to 85 percent of the purchase price is building. If you paid $100,000 and 80 percent was building, annual depreciation is about $2,909, so 30 years of ownership is roughly $87,000 of depreciation, capped at the building's cost. Your tax returns or your CPA's depreciation schedule will show the exact number, and the IRS treats depreciation as taken whether or not you actually claimed it.

Does a 1031 exchange eliminate the tax completely?

No. A 1031 exchange defers the tax. The gain carries forward into the replacement property and becomes due if you later sell without exchanging again. If you hold the replacement property until death, however, current law gives your heirs a basis equal to fair market value, which eliminates the deferred gain entirely.

Is this calculator accurate enough to rely on?

It is an estimate designed to show you the size of the problem, not a tax return. It uses top marginal rate assumptions, ignores bracket phase-ins, state-specific adjustments, passive activity loss carryforwards, prior installment sales, and alternative minimum tax. Use it to decide whether the conversation is worth having, then have your CPA run the exact figures.

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What would you owe if you just sold?

Most owners underestimate this by half, because they forget depreciation recapture and they forget the state. Fill in what you know and the numbers update as you type.

Your property

Estimates are fine. Nothing is sent anywhere and nothing is stored.

What you originally paid including purchase costs

Capital improvements since then roof, addition, major remodel. Not repairs.

Years you have owned it as a rental

Total depreciation taken leave the estimate if you are not sure

Expected sale price

Selling costs commission, escrow, title, repairs to close

Remaining mortgage to be paid off

Your tax situation

Your federal long-term capital gains rate

A large sale usually pushes you into the top bracket on its own, even if your normal income does not.

Your state

Apply the 3.8% net investment income tax
Applies once modified adjusted gross income passes $200,000 single or $250,000 married filing jointly. A large sale almost always triggers it.

Assumed DST distribution rate for the comparison panel only

If you sell outright

Net sale price after costs—

Adjusted cost basis—

Total taxable gain—

Depreciation recapture at 25%—

Federal capital gains—

Net investment income tax—

State income tax—

Total tax bill—

Cash left after taxes and mortgage payoff

—

If you do a 1031 exchange instead

Tax due this year$0

Proceeds available to reinvest—

Debt you would need to replace—

Real estate exposure at 50% DST leverage—

Tax deferred—

Estimated annual DST income

—

Projected, not guaranteed. A large share is typically sheltered by new depreciation.

Before DST fees and expenses, which commonly run 8 to 12 percent of the amount invested. See the DST fee section.

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How the calculation works

The math is not complicated, but it has more moving parts than most owners expect. Here is each line.

Step	What it means
Net sale price	Sale price minus commissions, escrow, title, and other closing costs.
Adjusted basis	Original purchase price, plus capital improvements, minus all depreciation taken or allowable. Decades of depreciation drive this number toward zero, which is why the gain on an old rental is so large.
Total gain	Net sale price minus adjusted basis. Note this is almost always much larger than the difference between what you paid and what you sold for.
Depreciation recapture	The portion of gain equal to depreciation taken is unrecaptured Section 1250 gain, taxed federally at up to 25 percent instead of the lower capital gains rate.
Federal capital gains	The remaining gain, taxed at 0, 15, or 20 percent depending on your total taxable income for the year.
Net investment income tax	An additional 3.8 percent on investment income once modified adjusted gross income passes $200,000 single or $250,000 married filing jointly.
State income tax	Most states tax the entire gain as ordinary income with no preferential rate. California is the extreme case at up to 13.3 percent. Nine states have no income tax at all.

This is an estimate, not a tax return

The calculator applies flat top-marginal assumptions. It does not model bracket phase-ins, the interaction with your other income, passive activity loss carryforwards you may be able to release on sale, state-specific adjustments, alternative minimum tax, Medicare premium surcharges two years later, or the effect on how much of your Social Security becomes taxable. Real numbers require your CPA and your actual depreciation schedule. Use this to decide whether the conversation is worth having.

Three things the calculator does not show you

The Medicare surcharge. A large one-time gain raises your modified adjusted gross income, which raises your Medicare Part B and D premiums two calendar years later. For a retired couple this can add a few thousand dollars in a year they did not plan for.
Social Security taxation. A spike in income can make up to 85 percent of your Social Security benefits taxable for that year.
What the money would have earned. The tax you pay is not just a payment. It is capital permanently removed from your portfolio. A $300,000 tax bill that instead stays invested and compounds at 6 percent is worth roughly $537,000 in ten years. That is the real cost of not planning.

Now compare all six of your options → · California owners, read this too →

Surprised by the number?

Most people are. Bring these figures to a free 30-minute call and we will pressure test them against your actual depreciation schedule and tell you what your realistic choices are.

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