Short answer: When you sell a rental, the gain is the sale price minus selling costs minus your adjusted basis (cost plus improvements, minus depreciation). The part equal to your depreciation is taxed at your ordinary rate up to 25%. The rest is taxed at 0%, 15% or 20% based on your 2026 taxable income, plus 3.8% NIIT above $200,000 ($250,000 joint).
It uses the same formulas as FirstDoor's full deal score.
How the tax on a rental sale is figured
Selling a rental is taxed in layers. First you find the gain, then you split it into the part that came from depreciation and the rest, because the IRS taxes them differently.
Adjusted basis = purchase price + closing costs added to basis + improvements − depreciation takenGain = (sale price − selling costs) − adjusted basis1. Depreciation recapture. The part of a long-term gain equal to the depreciation you took is unrecaptured section 1250 gain. IRS Topic 409 taxes it at a maximum 25%, so it is taxed at your ordinary rate if that is lower and at 25% if your rate is higher. Depreciation that was "allowed or allowable" counts, even if you never claimed it.
2. The rest of the gain. What is left is taxed at the long-term rates of 0%, 15% or 20%. Which rate applies depends on where the gain lands on top of your other taxable income and the depreciation part, the same stacking order the IRS Schedule D Tax Worksheet uses.
3. Net investment income tax. Capital gains count as net investment income. If your modified AGI is over the threshold for your filing status, a 3.8% tax applies to the lesser of the gain or the amount over the threshold (IRS, Form 8960). The calculator uses your other taxable income plus the gain as a stand-in for modified AGI.
Owned one year or less? Then the gain is short-term and IRS Topic 409 taxes it as ordinary income, so the calculator applies your bracket to all of it.
2026 capital gains rates and thresholds
The 0% and 15% ceilings below are the 2026 "maximum zero rate" and "maximum 15 percent rate" amounts from IRS Rev. Proc. 2025-32. They apply to taxable income, including the gain. They are the figures for sales in 2026; the IRS had not published 2027 figures when we checked on October 24, 2026. The net investment income tax thresholds are set by law and are not adjusted for inflation.
| Filing status (2026) | 0% up to | 15% | 20% | 3.8% NIIT above |
|---|---|---|---|---|
| Single | $49,450 | $49,450 – $545,500 | over $545,500 | $200,000 |
| Married filing jointly | $98,900 | $98,900 – $613,700 | over $613,700 | $250,000 |
| Head of household | $66,200 | $66,200 – $579,600 | over $579,600 | $200,000 |
| Married filing separately | $49,450 | $49,450 – $306,850 | over $306,850 | $125,000 |
Surviving spouses use the married filing jointly amounts. For 2025 returns, IRS Topic 409 lists $48,350 / $96,700 / $64,750 as the 0% ceilings.
Worked example
The defaults continue the example from our depreciation calculator: a $200,000 rental with $3,000 of closing costs in basis, held 10 full years, so $59,055 of depreciation taken. We grew the price at 3.4% a year, the 20-year annualized FHFA house price index change used in our ROI calculator, to get a $279,000 sale price. The loan payoff is what is left after 10 years on a 30-year loan with 20% down at 7.32% (Freddie Mac PMMS, week of 2026-10-22). Assumed for illustration: married filing jointly with $110,000 of other taxable income (the 22% bracket), and selling costs of $16,740 (6% of the price, a placeholder, so use your real quotes).
| Cost: price + closing costs in basis | $203,000 |
| Minus depreciation taken | −$59,055 |
| Adjusted basis | $143,945 |
| Amount realized ($279,000 − $16,740 selling costs) | $262,260 |
| Total gain | $118,315 |
| Depreciation part: $59,055 at 22% | $12,992 |
| Rest of the gain: $59,260 at 15% | $8,889 |
| Net investment income tax (about $228,315 is under the $250,000 threshold) | $0 |
| Estimated federal tax (18.5% of the gain) | $21,881 |
| Net proceeds before loan payoff | $240,379 |
| Loan payoff | −$138,316 |
| Cash at closing after tax and payoff | $102,063 |
Here the depreciation part stays inside the 22% bracket ($169,055 of taxable income is below $211,400, where the 2026 joint 24% bracket starts), so the result matches the full Schedule D Tax Worksheet.
The same sale at different incomes
Same property, same $118,315 gain. Only the seller's other income, filing status or holding period changes:
| Seller | Depreciation part | Rest of gain | NIIT | Total |
|---|---|---|---|---|
| Married filing jointly, $40,000 other taxable income, 12% bracket | $7,087 | $8,889 | $0 | $15,976 |
| Married filing jointly, $110,000, 22% bracket (the default) | $12,992 | $8,889 | $0 | $21,881 |
| Single, $300,000, 35% bracket | $14,764 | $8,889 | $4,496 | $28,149 |
| Same sale, owned 1 year or less, MFJ $110,000, 22% | $0 | $26,029 | $0 | $26,029 |
At a 35% bracket the depreciation part hits the 25% cap. Above the threshold, the 3.8% tax applies to the whole gain. Selling within a year taxes everything at your ordinary rate, though a real one-year hold would have far less depreciation.
What this calculator leaves out
It does not model a 1031 exchange (which can defer the tax), the section 121 home sale exclusion if the rental used to be your home (see rent out your house or sell it), state income tax, installment sales, suspended passive losses released on the sale, other capital gains or losses, or the alternative minimum tax. It also uses one bracket for the depreciation part, so if that gain pushes you into a higher bracket the real figure is a little higher. This is an estimate, not tax advice, so take your numbers to a CPA before you sell.
Frequently asked questions
How is capital gains tax calculated on a rental property?
Subtract selling costs from the sale price, then subtract your adjusted basis: what you paid plus closing costs in basis and improvements, minus depreciation. The part of the gain equal to depreciation is taxed at up to 25%. The rest is taxed at 0%, 15% or 20% depending on your taxable income, plus 3.8% NIIT if your income is over the threshold.
What are the 2026 capital gains tax brackets?
Per IRS Rev. Proc. 2025-32, the 0% rate applies to taxable income up to $49,450 single, $98,900 married filing jointly and $66,200 head of household. The 15% rate applies up to $545,500 single, $613,700 joint, $579,600 head of household and $306,850 married filing separately. Above that, 20%.
What is depreciation recapture on a rental property?
When you sell, the depreciation you took (or could have taken) comes back as unrecaptured section 1250 gain. IRS Topic 409 taxes it at a maximum 25% federal rate, or at your ordinary rate if that is lower.
Do I pay the 3.8% net investment income tax when I sell a rental?
Only if your modified AGI is over $200,000 single or head of household, $250,000 married filing jointly, or $125,000 married filing separately. The tax is 3.8% of the lesser of your net investment income or the amount over the threshold.
How can I avoid capital gains tax on a rental property?
A 1031 exchange into another investment property can defer it, and if the rental used to be your main home the section 121 exclusion may cover part of the gain. This calculator does not model either, so talk to a CPA before you sell.
What does this calculator leave out?
State income tax, 1031 exchanges, the home sale exclusion, installment sales, suspended passive losses, other gains and losses, and AMT. It uses one bracket for the depreciation part and approximates modified AGI. It is an estimate, not tax advice.