Capital Gains Tax Estimator
Enter your purchase price, sale price, selling costs, capital improvements, depreciation claimed, and tax bracket to estimate capital gains tax on a rental property sale. This estimator shows both depreciation recapture and long-term capital gains separately. Consult a CPA before making sale decisions.
Tax notice: Tax calculations shown are simplified estimates for educational purposes. Actual tax liability depends on your individual circumstances, filing status, applicable deductions, and current tax law. This is not tax advice. Consult a CPA or tax professional. Full disclaimer.
What is Capital Gains Tax Estimator?
When you sell a rental property for more than your adjusted basis, the gain is generally subject to federal capital gains tax. The tax has two components that are calculated differently: depreciation recapture and long-term capital gains. Your adjusted basis is the original purchase price plus capital improvements minus total depreciation claimed (or that could have been claimed). This adjusted basis is subtracted from the net sale proceeds (sale price minus selling costs) to determine the total gain. The total gain is then split into two portions. First, depreciation recapture — the amount of depreciation previously claimed — may be taxed at rates up to 25% under current rules. Second, any remaining gain above the recaptured amount may be taxed at the applicable long-term capital gains rate (0%, 15%, 20%, or 23.8% including the Net Investment Income Tax). This estimator provides a simplified federal estimate only. It does not account for state income taxes, the alternative minimum tax (AMT), passive activity loss recapture, installment sale treatment, or other factors that may affect your actual tax liability. The 3.8% Net Investment Income Tax (NIIT) applies to certain high-income taxpayers. Strategies to reduce or defer the tax include 1031 like-kind exchanges (deferring the gain by reinvesting in another property), installment sales (spreading the gain over multiple years), and qualified opportunity zone investments. Each strategy has specific requirements and limitations. Consult a qualified tax professional before implementing any tax strategy.
How to Calculate
- Enter the original purchase price of the property
- Enter the expected or actual sale price
- Enter selling costs as a percentage (agent commissions + closing costs, typically 5-8%)
- Enter total capital improvements made during ownership (not routine repairs)
- Enter total depreciation claimed over the ownership period
- Select your applicable long-term capital gains rate
- Review the estimated tax breakdown and net proceeds
- Consult a CPA to confirm the estimate and explore tax reduction strategies
Formula
Adjusted Basis = Purchase Price + Capital Improvements − Depreciation Claimed Net Sale Proceeds = Sale Price × (1 − Selling Costs %) Total Gain = max(0, Net Sale Proceeds − Adjusted Basis) Depreciation Recapture = min(Depreciation Claimed, Total Gain) — estimated at up to 25% Capital Gain = max(0, Total Gain − Depreciation Recapture) — at your long-term CG rate Total Estimated Tax = Recapture Tax + Capital Gains Tax Net After Tax = Net Sale Proceeds − Total Estimated Tax Note: This is a simplified federal estimate. Actual tax may differ based on state taxes, AMT, NIIT, and individual circumstances.
Example Calculation
For a property purchased at $300,000, sold for $400,000, with 6% selling costs, $0 improvements, $87,273 depreciation claimed, at the 15% CG rate: Adjusted Basis = $300,000 + $0 − $87,273 = $212,727 Net Sale Proceeds = $400,000 × 0.94 = $376,000 Total Gain = $376,000 − $212,727 = $163,273 Depreciation Recapture = $87,273 (taxed at up to 25%) = $21,818 Capital Gain = $163,273 − $87,273 = $76,000 (taxed at 15%) = $11,400 Total Estimated Tax = $21,818 + $11,400 = $33,218 Net After Tax = $376,000 − $33,218 = $342,782
Frequently Asked Questions
What is depreciation recapture?
When you sell a rental property, the depreciation you previously claimed (which reduced your taxable income during ownership) may be 'recaptured' and taxed at rates up to 25%. This applies to the lesser of the depreciation claimed or the total gain on the sale. It is separate from long-term capital gains tax and is typically calculated first.
Can I avoid capital gains tax by doing a 1031 exchange?
A 1031 like-kind exchange allows you to defer capital gains tax (including depreciation recapture) by reinvesting the proceeds into another qualifying investment property. There are strict rules: you generally have 45 days to identify replacement properties and 180 days to close. The replacement property should be of equal or greater value to defer the full gain. Consult a qualified intermediary and CPA.
Does this calculator include state taxes?
No — this provides a federal estimate only. Many states also tax capital gains, often at your ordinary income tax rate. State taxes can add 0-13% to your total tax bill depending on where you live. Include state taxes in your planning by consulting a CPA familiar with your state.
What counts as capital improvements?
Capital improvements are significant additions or changes that extend the property's useful life or add value: new roof, HVAC replacement, kitchen renovation, adding a bathroom, structural repairs. Routine maintenance (painting, fixing leaks, replacing a faucet) does not count. Capital improvements increase your adjusted basis, which reduces your taxable gain.
What if I sold the property for a loss?
If your net sale proceeds are less than your adjusted basis, you may have a capital loss. Capital losses on investment property can generally offset other capital gains and up to $3,000 of ordinary income per year, with unused losses carried forward. However, the specific tax treatment depends on your circumstances — consult a CPA.