Long-term vs. short-term
The preferential 0/15/20% rates only apply to long-term capital gains — from assets held more than one year. Real estate sold within a year of purchase generates short-term gain taxed at your full ordinary income rate. Always hold at least one year to access the preferential rates.
The three tiers
The applicable rate depends on your total taxable income in the year of sale. Lower-income taxpayers may qualify for the 0% rate; middle-income taxpayers pay 15%; the top 20% rate applies at higher income thresholds. The exact brackets adjust for inflation each year — check the IRS website or your tax professional for the current thresholds.
Depreciation recapture is separate
Do not confuse capital gains rates with the recapture rate. The portion of your gain equal to depreciation claimed is Section 1250 gain, taxed at up to 25% — not at the 0/15/20% capital gains rates. Only the gain above the recapture amount benefits from preferential capital gains treatment.
Frequently asked questions
What rate applies to my rental sale?
Depreciation recapture is taxed at up to 25%. The remaining gain is taxed at your long-term capital gains rate (0%, 15%, or 20%) based on your taxable income.
Is capital gains tax the same as depreciation recapture?
No — they're two separate components of the same gain, taxed at different rates and calculated differently.
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.