More than one year
To qualify for long-term capital gains rates (0%, 15%, or 20%), you must hold the property for more than 12 months before selling. The holding period begins on the day after you acquire the property and ends on the day of sale. Selling on day 365 exactly is short-term; selling on day 366 or later is long-term.
Short-term gains (held 12 months or less) are taxed at ordinary income rates — potentially 22%, 24%, 32%, 35%, or 37% depending on your bracket. The difference in rates makes timing a sale around the one-year mark extremely valuable for high-income investors.
Special cases
Inherited property is automatically long-term regardless of how quickly you sell — even if you sell within days of inheriting, the gain is treated as long-term. Gifted property tacks on the donor's holding period, so you start with however long they held it. In a 1031 exchange, there is no mandated holding period to complete an exchange, but IRS guidance and various courts have indicated that properties held for less than one or two years raise questions about whether the property was held for investment as required.
Depreciation recapture and the holding period
Depreciation recapture is a separate category from capital gains and is not affected by the holding period. Unrecaptured Section 1250 gain is taxed at up to 25% regardless of whether you held the property for 1 year or 30 years. Similarly, Section 1245 recapture is always ordinary income, independent of the holding period. The holding period only affects the rate on the gain above the recapture amount.
Frequently asked questions
How long do I need to hold a rental for long-term capital gains?
More than 12 months. Sell on day 366 or later and the gain qualifies for long-term rates; sell at 12 months or less and it's all ordinary income.
Does holding period affect depreciation recapture rates?
No. Recapture is taxed at up to 25% (Section 1250) or ordinary income rates (Section 1245) regardless of how long you held the property.
Is inherited property automatically long-term?
Yes. Inherited property always qualifies for long-term capital gains rates no matter when you sell it after inheriting.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.