How is capital gains tax calculated on a sale?

Long-term gains stack on top of your other taxable income and fill the 0%, 15% and 20% bands in order, so the same gain costs different amounts depending on what else you earned that year. On top of that sits the 3.8% net investment income tax above $200,000 single or $250,000 married.

What is depreciation recapture and why is it 25%?

If a property was ever rented, §1016(a)(2) reduces your basis by the depreciation you were allowed to take, whether or not you claimed it. That layer is taxed at a flat 25% under §1(h)(1)(E), and no home-sale exclusion reduces it.

Does spreading a sale over several years lower the tax?

It can. Capital gains brackets and the NIIT threshold reset every January, so a gain taken in one lump clears them once while the same gain spread over years may stay in lower bands each year. An installment sale must be in place before closing.

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How big is your tax bomb?

Sell a business, a rental, land or a building and the tax is not one number at one rate. It is four separate taxes stacked on top of each other, and the one that surprises people most is depreciation recapture — taxed at 25%, on money you never put in your pocket. Put your numbers in and see the whole bill.

The sale

Sale price

Selling costs

What you originally paid

Improvements since Capital improvements only, not repairs.

Depreciation you have claimed Rental or business property. Enter it even if you never claimed it — under §1016(a)(2) the IRS reduces your basis by the depreciation you were allowed, claimed or not.

You

Filing status

Other taxable income this year

What are you selling?A few states tax these differently. Washington, for one, exempts real estate entirely but taxes a business sale.

Your state

This was my primary residence for 2 of the last 5 years Applies the §121 exclusion — $250,000 single / $500,000 married. Never shelters depreciation recapture.

The three legal ways to not pay it all at once

There are exactly three routes in the code for deferring a gain like this, and each one has a hard deadline that closes the day you sign. The free one-page explainer covers what each does, what it costs, and — the part people miss — which ones must be set up before closing.

§1031 like-kind exchange — real property only. 45 days to identify, 180 to close. Does not defer the boot.
Delaware Statutory Trust — a §1031 replacement you do not manage. Same deadlines.
§453 installment sale — spreads the gain over years. Must be in place before closing; once you have the cash it is gone.

We are a 501(c)(3). Nothing is for sale on this page and no one will call you to pitch a product.

Sale price
Less selling costs
Less adjusted basis
Less §121 home exclusion
Taxable gain
Depreciation recapture @ 25% §1250
Federal capital gains
Net investment income tax @ 3.8% §1411
State income tax
Total tax
Cash you actually keep

All in one year
Spread evenly
Difference

How big is your tax bomb?

The sale

You

What if you did not take it all in one year?

The three legal ways to not pay it all at once