United States guide
Capital gains tax when selling a rental property
When you sell a US rental property, two charges apply. Depreciation you claimed, or could have claimed, is recaptured and taxed at up to 25%. The remaining gain is a long-term capital gain taxed at 0%, 15% or 20%, with the 3.8% Net Investment Income Tax on top above $200,000 of income for a single filer.
| Depreciation recapture rate | Up to 25% |
| Long-term capital gains rates | 0%, 15% or 20% |
| Net Investment Income Tax | 3.8% |
| NIIT threshold, single | $200,000 |
| Main-home exclusion | Not available unless it was your home |
What is depreciation recapture?
While a property is rented, the tax code lets you deduct part of the building cost each year as depreciation. When the property is sold, that benefit is unwound. The depreciation claimed is taxed as unrecaptured Section 1250 gain at a rate of up to 25%, which is higher than the long-term capital gains rate.
Recapture applies to depreciation you were allowed to claim, whether or not you actually claimed it. Not claiming depreciation during ownership does not avoid the charge on sale.
How is the rest of the gain taxed?
The gain above the recaptured depreciation is a long-term capital gain if the property was held for more than one year. It stacks on top of your ordinary taxable income to decide whether it falls in the 0%, 15% or 20% band.
When does the Net Investment Income Tax apply?
The 3.8% Net Investment Income Tax applies to the lesser of your net investment income and the amount by which modified adjusted gross income exceeds $200,000 for a single filer, or $250,000 married filing jointly. A large property gain often pushes income above the threshold in the year of sale even when normal income sits below it.
Can the tax be deferred?
A like-kind exchange under Section 1031 can defer the tax when the proceeds are reinvested in another investment property within strict time limits, using a qualified intermediary. This is a specialised area with short deadlines and is not modelled by the calculator. Take professional advice before selling if a deferral is intended, because the structure must be in place before completion.
Worked example: a rental sold after claiming depreciation
| Sale price | $600,000 |
| Less purchase price | −$350,000 |
| Less selling costs | −$30,000 |
| Gain | $220,000 |
| Long-term gain at 15% | $19,500 |
| Depreciation recapture at 25% | $22,500 |
| Net Investment Income Tax at 3.8% | $6,460 |
| Estimated federal tax | $48,460 |
A single filer with $150,000 of other income who claimed $90,000 of depreciation. State tax is separate and is not included.
Try your own figures in the United States capital gains tax on property calculator.
Common questions
Do I pay tax on depreciation when I sell a rental?
Yes. Depreciation claimed, or allowable, is recaptured on sale and taxed at up to 25%, separately from the long-term capital gains rate on the rest of the gain.
Can I use the main-home exclusion on a rental?
Only if the property was genuinely your main home for at least two of the five years before the sale. Even then, periods of non-qualified use after 2008 and any depreciation claimed are excluded from the relief.
Does selling at a loss create a deduction?
A loss on an investment property is generally deductible against other capital gains and, within limits, ordinary income. A loss on a personal residence is not deductible.
What is a 1031 exchange?
A like-kind exchange that defers the tax when sale proceeds are reinvested in another investment property through a qualified intermediary within set deadlines. It defers rather than removes the tax and must be arranged before the sale completes.
This is an estimate for general information only, not tax, legal or financial advice. Tax rules are complex and depend on your circumstances, and figures may not reflect the latest changes. Confirm your position with Internal Revenue Service (IRS) or a qualified tax adviser before acting. The terms of use set out the limits of this estimate and of our liability.
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