Last Updated: June 2026
No matter the type of rental real estate investment, there may be a time when it makes sense to sell. When selling a rental property, investors may be subject to various taxes, including capital gains tax, depreciation recapture tax, and potentially state and local taxes. These taxes are based on various factors such as the property’s sale price, adjusted basis, and holding period. Understanding the tax rules of selling a rental property can help investors optimize their tax strategy, minimize tax liabilities, and maximize after-tax returns.
3 Main Taxes When Selling a Rental Property
Rental property taxes and the way they are applied when selling a rental property can seem a little complex at first. When selling a rental property, there are 3 main tax components to be aware of: Cost Basis, Capital Gains, and Depreciation. Each is used to calculate the final total amount of taxes due for selling a rental property (if applicable).
1. Cost Basis
When selling a residential rental property, the cost basis is what is used to determine the capital gains or losses realized from the sale. Cost basis is generally calculated as the original purchase price of the property, adjusted for certain expenses, improvements, depreciation, and other rental property deductions taken over the years. This basis is what is used to calculate the amount subject to capital gains (see below) which is calculated by subtracting the cost basis from the property’s sale price. If the sale price is higher than the cost basis, it results in a capital gain. Conversely, if the sale price is lower than the cost basis, it leads to a capital loss.
2. Capital Gains
If a real estate investor sells a rental property for a profit, they may be subject to capital gains tax on the profit generated from the sale. Capital gains tax is applied to the difference between the property’s sale price and its adjusted cost basis, which is the original purchase price plus any qualifying improvements or adjustments. If the property was owned for more than one year, it is generally classified as a long-term capital gain, which is subject to lower tax rates than short-term gains. However, if the property was depreciated, a portion of the gain may be subject to depreciation recapture tax (see below).
Pro Tip
Investors can utilize options like 1031 exchanges or opportunity zones to potentially defer or reduce their capital gains tax liability.
3. Depreciation Recapture
Depreciation is an accounting method that allows investors to deduct the cost of the property over its useful life. Some tax saving techniques such as cost segregating can even accelerate depreciation deductions. However, when the property is sold, any depreciation claimed over the years must be recaptured and taxed as ordinary income. The depreciation recapture tax rate is generally 25%. The recaptured amount is calculated by subtracting the property’s adjusted basis (original purchase price minus any depreciation deductions) from the property’s sale price. The resulting recaptured depreciation is then taxed at the applicable tax rate.
Tax Rates If You Sold a Rental Property in 2026
2026 Capital Long Term Gains Tax Rate
15%*
*Assuming Tax filing status is Married Filing Jointly, with annual income of $175,000.
2026 Capital Short Term Gains Tax Rate
22%*
*Assuming Tax filing status is Married Filing Jointly, with annual income of $175,000.
Long Term Capital Gains Tax Rates for 2026
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | $0 – $49,450 | $0 – $98,900 | $0 – $49,450 | $0 – $66,200 |
| 15% | $49,450 – $545,500 | $98,900 – $613,700 | $49,450 – $306,850 | $66,200 – $579,600 |
| 20% | $545,500+ | $613,700+ | $306,850+ | $579,600+ |
Short Term Capital Gains Tax Rates for 2026
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 – $12,400 | $0 – $24,800 | $0 – $12,400 | $0 – $17,700 |
| 12% | $12,400 – $50,400 | $24,800 – $100,800 | $12,400 – $50,400 | $17,700 – $67,450 |
| 22% | $50,400 – $105,700 | $100,800 – $211,400 | $50,400 – $105,700 | $67,450 – $105,700 |
| 24% | $105,700 – $201,775 | $211,400 – $403,550 | $105,700 – $201,775 | $105,700 – $201,775 |
| 32% | $201,775 – $256,225 | $403,550 – $512,450 | $201,775 – $256,225 | $201,775 – $256,200 |
| 35% | $256,225 – $640,600 | $512,450 – $768,700 | $256,225 – $384,350 | $256,200 – $640,600 |
| 37% | $640,600+ | $768,700+ | $384,350+ | $640,600+ |
Recommended Tax Tools for Real Estate Investors
Tax & Bookkeeping Software
Baselane
Why We Like Baselane – Baselane makes rental property tax season dramatically simpler by automatically categorizing every transaction into Schedule E tax categories throughout the year. They combine landlord banking, bookkeeping, rent collection, and tax reporting in one free platform by generating audit-ready reports, tracking deductions in real time, and giving investors a clear picture of after-tax cash flow without the spreadsheet headache.
Rental Property Tax Calculators
Search Rental Real Estate
Try searching our site for hundreds of rental property topics including loans, investor tool reviews, real estate companies, property management tips and more.
Taxes for Selling a Rental Property FAQ
How Much Taxes Do You Pay When You Sell a Rental Property?
When selling an investment property in the United States, real estate investors need to consider all financial aspects of the rental property. The most prominent are capital gains tax and potential depreciation recapture tax. The capital gains tax is calculated based on the profit from the sale, taking into account the property’s adjusted basis. The tax rate depends on the holding period, with long-term capital gains generally taxed at lower rates. Depreciation recapture tax may apply if the property was depreciated, and it is typically taxed at a flat rate of 25%.
How to Avoid Taxes When Selling a Rental Property?
Much like the requirement to pay local government property taxes, paying taxes when selling a rental property is not technically avoidable. Minimizing or reducing is often more appropriate than “avoiding”, and there are several strategies that real estate professionals for tax purposes and investors often use to potentially minimize taxes when selling a rental property in the United States.
One approach is to utilize a 1031 exchange, which allows for the deferral of capital gains tax by reinvesting the proceeds into a similar investment property. Another option is to consider investing in Qualified Opportunity Zones (QOZs) to potentially defer or reduce capital gains tax.
How Does Selling a Rental Property Affect Taxes?
Whether you are selling a commercial property or residential property, the transaction of selling can have significant tax implications. Most of it will depend on whether or not you sold the property for a profit. If yes, then expect a larger tax bill to account for the newly minted profits. This is often the case with capital gains, which are based on the profits from the sale. Additionally, if you had historically taken depreciation deductions, selling the property is the time when recapturing those deductions is applied. If there was no realized profit from the sale, or even a loss, then your tax bill can potentially be equal or smaller than previous years.
More Rental Real Estate Tax Guides
Methodology
The tax rates and brackets on this page are taken directly from official Internal Revenue Service (IRS) sources. Long-term and short-term capital gains rates, income thresholds, and the depreciation recapture rate are not derived or estimated; they are the figures published by the IRS for the applicable tax year. The 2026 income thresholds reflect the IRS’s annual inflation adjustments as set in Revenue Procedure 2025-32.
| Data Point | IRS Source | Description |
|---|---|---|
| Cost Basis / Adjusted Basis | Publication 551, Basis of Assets | How basis is determined and adjusted to calculate gain or loss on a sale |
| Long-Term Capital Gains Brackets | Revenue Procedure 2025-32 | Inflation-adjusted long-term capital gains income thresholds for the 2026 tax year |
| Short-Term Capital Gains Rates | Revenue Procedure 2025-32 | Ordinary income tax brackets for 2026, which apply to short-term gains (assets held one year or less) |
| Capital Gains Rate Structure (0%, 15%, 20%) | Topic No. 409, Capital Gains and Losses | Long-term vs. short-term classification, holding period, and applicable rates |
| Depreciation Recapture Rate (25%) | Topic No. 409 / Publication 544 | Maximum 25% rate on unrecaptured Section 1250 gain and recapture rules on disposition of real property |
Data Sources (U.S. Internal Revenue Service):
- Topic No. 409, Capital Gains and Losses — https://www.irs.gov/taxtopics/tc409
- Revenue Procedure 2025-32 (2026 inflation adjustments) — https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
- Publication 544, Sales and Other Dispositions of Assets — https://www.irs.gov/publications/p544
- Publication 551, Basis of Assets — https://www.irs.gov/publications/p551
About the Author
Ryan Nelson
I’m an investor, real estate developer, and property manager with hands-on experience in all types of real estate from single family homes up to hundreds of thousands of square feet of commercial real estate. RentalRealEstate is my mission to create the ultimate real estate investor platform for expert resources, reviews and tools. Learn more about my story.
Disclaimer: The information provided on this website does not, and is not intended to, constitute financial advice. As such, all information, content, and materials available on this site are for general informational purposes only. Please review our Editorial Standards for more info.