Capital Gains Tax Calculator on Sale of Rental Property

How to use the capital gains calculator

Enter:

• Sale price.
• Purchase price, including the closing costs that were added to your basis when you bought.
• Improvements: additions and replacements that were added to basis, such as a roof, HVAC or a remodel. Not routine repairs.
• Selling costs: agent commission, title, transfer taxes and other closing costs you paid as the seller.
• Depreciation taken, from your tax returns or depreciation schedule.
• Holding period: more than one year means long-term rates.
• Filing status and income bracket, so the tool can pick a capital gains rate and check the net investment income tax.

The calculator estimates your federal tax and shows the depreciation recapture part separately.

The formulas

• Adjusted basis = purchase price + improvements - depreciation taken
• Amount realized = sale price - selling costs
• Total gain = amount realized - adjusted basis
• Recapture portion (unrecaptured section 1250 gain) = the smaller of depreciation taken or total gain, taxed at up to 25%
• Capital gain portion = total gain - recapture portion, taxed at 0%, 15% or 20% if held more than a year
• Net investment income tax = 3.8% x the smaller of your net investment income or the amount your modified AGI is over the threshold

If you held the property one year or less, the whole gain is short-term and taxed at ordinary income rates.

A worked example

A married couple filing jointly bought a rental for $280,000, put $30,000 into improvements, and took $70,000 of depreciation over 10 years. They sell for $450,000 and pay $27,000 in selling costs. Their other income is $120,000.

• Adjusted basis: $280,000 + $30,000 - $70,000 = $240,000
• Amount realized: $450,000 - $27,000 = $423,000
• Total gain: $183,000
• Recapture portion: $70,000 x 25% = up to $17,500
• Capital gain portion: $113,000 x 15% = $16,950
• Modified AGI: $120,000 + $183,000 = $303,000, which is $53,000 over the $250,000 threshold
• Net investment income tax: $53,000 x 3.8% = $2,014

Estimated federal tax: about $36,464, or roughly 20% of the gain. State tax is extra.

What a good result looks like

The tax is what it is; the goal is to make sure the number isn’t higher than it needs to be. Check that every improvement and selling cost is counted, since each $10,000 you find lowers the gain by $10,000. If you have suspended passive losses from past years, they’re generally released when you sell the whole property to an unrelated buyer, which can offset part of the gain.

If the estimate is large and you plan to keep investing, compare it with the cost of a 1031 exchange. If you plan to stop investing, think about timing the sale for a year when your other income is lower.

Limits and caveats

• Brackets change each year. The income thresholds for the 0%, 15% and 20% rates are adjusted for inflation annually. The net investment income tax thresholds of $200,000 single and $250,000 joint are fixed in the law.
• The 25% is a cap. If your ordinary bracket is lower, part of the recapture is taxed at that lower rate.
• State taxes aren’t included, and some states tax capital gains as ordinary income.
• Mixed-use properties, such as a home you lived in and then rented, need a closer look at the home-sale exclusion.
• This is a planning estimate, not tax advice. Have a tax professional review the sale before you close.