JB PARCELCapital Gains Calculator
Selling an investment property produces two different taxes at two different rates. This splits the gain into depreciation recapture and long-term gain so you see the real number.
How this calculator works
Start with net sale proceeds: sale price minus selling costs. Then build adjusted basis: what you paid, plus capitalized purchase closing costs, plus capital improvements, minus all the depreciation you took. Net sale minus adjusted basis is your total gain, and it is almost always larger than sellers expect because depreciation has been quietly reducing basis for years.
That gain then splits into two pieces taxed at different rates. The portion equal to your accumulated depreciation is unrecaptured section 1250 gain, taxed at up to 25 percent. Everything above that is long-term capital gain, taxed at the federal bracket that applies to you. Above certain modified AGI thresholds, the 3.8 percent net investment income tax applies on top of both.
Every rate here is a field you fill in, on purpose. Federal long-term brackets are 0, 15, and 20 percent, and the income thresholds that separate them change every year. NIIT thresholds change. Publishing a rate as fact means publishing something that is wrong twelve months later, so we ask you for it instead. If you do not know your bracket, your CPA does.
For Tennessee filers, the state line is zero. Tennessee has no state individual income tax, so capital gains on an investment property sale carry no state income tax for a Tennessee resident. If you file in another state, enter that state's rate.
Worked example: selling a rental held eight years
Bought at $295,000, sold at $465,000, $42,000 of improvements, $78,000 of depreciation taken.
| Net sale proceeds (after 7% costs) | $432,450 |
|---|---|
| Adjusted basis | $262,800 |
| Total gain | $169,650 |
| Recapture portion at 25% | $19,500 |
| Long-term portion at 15% | $13,748 |
| NIIT at 3.8% | $6,447 |
| Total tax | $39,694 |
| Effective rate on the gain | 23.4% |
Notice how much of the gain came from depreciation rather than appreciation. The property went up $170,000 in value, but $78,000 of the taxable gain is basis you wrote off along the way. That is the trade depreciation makes: a deduction now for a larger gain later. A 1031 exchange defers the whole $39,694, which is why the exchange conversation belongs before the listing agreement.
Questions investors ask
What tax rate applies to selling a rental property?
Two rates, on two pieces of the gain. Depreciation recapture is taxed at up to 25 percent. The rest is long-term capital gain at the federal bracket that applies to your taxable income, currently structured as 0, 15, or 20 percent, plus 3.8 percent net investment income tax above certain thresholds. This calculator takes each rate as an input because the thresholds move every year.
Can I avoid depreciation recapture?
Defer it, not avoid it. A 1031 exchange into like-kind property defers both recapture and capital gains as long as you meet the deadlines and reinvest fully. Holding until death has historically stepped up basis for heirs, which is an estate planning conversation rather than an investing one. What does not work is simply not claiming depreciation, because recapture applies to depreciation allowed or allowable, meaning you owe it whether or not you took it.
Does the primary residence exclusion apply to a rental?
Only if it was genuinely your main home for at least two of the five years before the sale. Then section 121 may exclude up to $250,000 of gain, or $500,000 filing jointly. Important limits: the exclusion does not shield depreciation recapture from the period it was a rental, and periods of nonqualified use can reduce it. If you converted a rental to a residence or the reverse, this needs a CPA.
How do I calculate adjusted basis?
Purchase price, plus capitalized closing costs at purchase, plus capital improvements, minus all depreciation taken or allowable. Capital improvements are additions and replacements that add value or extend useful life, a new roof, an addition, a full HVAC replacement. Routine repairs are not improvements, they were already deducted as expenses in the year you paid them. Keep receipts, because improvements are worth real money at sale and are the thing people fail to document.
Should I sell or do a 1031 exchange?
Run the numbers both ways. The exchange defers a real tax bill, in this example nearly $40,000, but it puts you on a 45-day identification clock and a 180-day closing clock, requires a qualified intermediary, and pushes you to buy in a market you may not love. If the replacement property is worse than what you would otherwise buy, the deferral can cost more than it saves. Check the exchange timeline before you list.
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Screening a real property? Pull its appraised value, assessed value, acreage, land use, and last recorded sale off the JB PARCEL parcel map and drop the real numbers into this calculator instead of guessing. Coverage runs across every county we carry.