Selling a rental means three taxes at once: depreciation recapture at up to 25%, capital gains at 0%, 15% or 20%, and the 3.8% NIIT, plus your state. Losses you could not use for years come back. Enter your numbers to see the full bill and what you keep.
By Hans Goldstein, EA, founder, Retirement Literacy Foundation. 2026 federal law, every rate sourced below.
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Worked example
A married couple in California sells a rental they have owned for 15 years for $1,200,000. They paid $500,000, added $50,000 of improvements, took $180,000 of depreciation and have $40,000 of suspended passive losses. Selling costs are $70,000 and their other income is $120,000.
| Line | Amount |
|---|---|
| Estimated tax on your rental sale | $216,160 |
| Amount realized (price minus selling costs) | $1,130,000 |
| Adjusted basis (price paid plus improvements, minus depreciation) | $370,000 |
| Total gain | $760,000 |
| Unrecaptured Section 1250 gain (taxed up to 25%) | $180,000 |
| Rest of the gain (0/15/20%) | $580,000 |
| Suspended passive losses released (IRC 469(g)) | -$40,000 |
| Federal income tax (incl. any AMT) | $126,533 |
| Net investment income tax (3.8%) | $22,420 |
| California tax | $67,207 |
| What you keep after tax (before paying off any mortgage) | $913,840 |
Spread the same taxable gain over 5 years with an installment sale and the tax drops from $216,160 to $175,988: they keep $40,173 more (2026 law and income held flat; interest on the note left out).
Computed October 13, 2026 with the same engine the calculator uses: 2026 federal brackets (IRS Rev. Proc. 2025-32), state rates as coded for 2026. Illustrative; your numbers will differ.
How it works
Common questions
In layers: depreciation you took is taxed at up to 25%, the rest of the gain at 0%, 15% or 20%, the 3.8% net investment income tax applies when income is over $250,000 married or $200,000 single, and your state taxes it too. The calculator stacks all of them.
Yes. Basis drops by depreciation allowed or allowable (IRC 1016(a)(2)), so the gain and the 25% layer include it. You may be able to catch up missed depreciation with Form 3115 before the sale year ends.
Selling your entire interest in a fully taxable sale to an unrelated buyer frees them (IRC 469(g)). They offset the gain and other income in the year of sale; in an installment sale they are freed in proportion to the gain recognized each year.
Partly at best. Gain from years after 2008 when it was not your main home stays taxable, and depreciation is always taxed (IRC 121(b)(5), 121(d)(6)). Use the home sale capital gains calculator to see the split.
It can be: smaller yearly gains can stay in lower brackets, below the NIIT line and in lower state brackets. The calculator compares one year with the same gain over the years you pick. Interest on the note is extra income, and the buyer's credit matters.
Related: Capital gains tax on selling a rental (guide) · Depreciation recapture calculator · Capital gains tax calculator · 1031 boot calculator · Mortgage over basis calculator · Net investment income tax calculator · Estimated tax after a sale
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Reviewed for the Retirement Literacy Foundation, a 501(c)(3) education nonprofit. Prepared by Hans Goldstein, EA, retirement educator. Admitted to practice before the IRS. Informational only. Not tax, legal or investment advice. Every figure below cites its source so your CPA or attorney can check it.
Figures are 2026 federal amounts unless stated. Examples are illustrative and rounded; your numbers will differ. By Hans Goldstein, EA, founder, Retirement Literacy Foundation. Last reviewed .
Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS.