The long-term capital gains tax rate on the sale of property is 0%, 15%, or 20% at the federal level, and which one you pay depends on your total taxable income and filing status for the year. For 2026, single filers cross into the 20% bracket at $545,500 of taxable income, and married couples filing jointly cross it at $613,700. Two extra layers can sit on top: a 25% rate on the portion of gain tied to depreciation you claimed on a rental or business property, and a 3.8% surtax on investment income for higher earners.
The Three Federal Rates for 2026
Long-term capital gains use their own bracket schedule, separate from ordinary income brackets. The thresholds are adjusted annually for inflation. For the 2026 tax year:1Internal Revenue Service. Revenue Procedure 2025-32
- 0% on taxable income up to $49,450 single, $98,900 married filing jointly, or $66,200 head of household.
- 15% on taxable income above the 0% ceiling up to $545,500 single, $613,700 married filing jointly, or $579,600 head of household.
- 20% on taxable income above the 15% ceiling.
The brackets work progressively. A single filer with $560,000 of taxable income including the gain pays 20% only on the slice above $545,500; the rest of the long-term gain falls in the 15% band, and any portion sitting in the 0% zone is untaxed. Most sellers of a typical property land in the 15% bracket.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
You Have to Have Held It More Than a Year
These rates apply only to long-term gains. If you owned the property for one year or less, the profit is a short-term gain and taxed at your ordinary income rate, which reaches as high as 37%. The IRS counts the holding period starting the day after you acquired the property through the day you sold it, so a property bought on March 15, 2025 and sold on March 15, 2026 is still short-term; you would need to sell on March 16 or later.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Figuring the Gain the Rate Applies To
The rate is applied to your taxable gain, not to the full sale price. Your gain is the amount realized on the sale minus your adjusted basis in the property.
Your adjusted basis starts with the original purchase price plus certain closing costs from when you bought: title insurance, recording fees, transfer taxes, legal fees for the title search and deed preparation, and survey costs. Loan-related fees such as mortgage origination points and lender-required appraisals do not count. You then add the cost of capital improvements made during ownership — projects that add value or extend the property’s useful life, like a new roof, an addition, or a full kitchen remodel. Routine maintenance and repairs do not qualify.3Internal Revenue Service. Publication 551 – Basis of Assets
On the sale side, the amount realized is the sale price minus selling expenses. Real estate agent commission is usually the largest one. Legal fees for deed preparation and any transfer taxes you paid at closing also come off the top. Every dollar you shave off the gain properly is a dollar that does not get taxed.
The 25% Depreciation Recapture Layer
If you sold a rental or business property, part of your gain is taxed at a different rate than the standard 0/15/20 schedule. During ownership you claimed annual depreciation deductions that reduced your taxable rental income. When you sell, the IRS recaptures the benefit of those deductions.
Under Section 1250, the portion of gain attributable to depreciation you previously deducted — called unrecaptured Section 1250 gain — is taxed at a maximum rate of 25%.4Office of the Law Revision Counsel. 26 U.S. Code 1 – Tax Imposed If your total gain is smaller than the depreciation you claimed, the entire gain is taxed at 25%. Any gain above the recaptured depreciation falls back to the regular long-term rates.
An example: you bought a rental for $300,000, claimed $80,000 in depreciation over the years (reducing your basis to $220,000), and sold for $400,000. Your total gain is $180,000. The first $80,000 is taxed at up to 25% as depreciation recapture, and the remaining $100,000 is taxed at your applicable long-term rate. Recapture is reported on Form 4797, Part III.5Internal Revenue Service. Instructions for Form 4797
The 3.8% Net Investment Income Tax
Higher earners pay an additional 3.8% surtax on capital gains from property sales under Section 1411. The tax kicks in when your modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.6Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax
It is calculated on the lesser of two amounts: your net investment income for the year, or the amount by which your modified adjusted gross income exceeds the threshold. For most domestic taxpayers, modified adjusted gross income equals regular adjusted gross income; the only adjustment is for foreign earned income excluded under Section 911. These thresholds have not been adjusted for inflation since the tax took effect in 2013, so more taxpayers cross them each year.7Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
For someone already in the 20% long-term bracket, the surtax pushes the effective federal rate to 23.8%. Combined with 25% depreciation recapture, a high-income seller of a rental property can face different rates on different slices of the same gain.
If the Property Was Your Home
If the property you sold was your primary residence, most or all of the gain may not be taxable at all, so none of the rates above apply to the excluded portion. Under Section 121, you can exclude up to $250,000 of gain if you’re single, or up to $500,000 if you’re married filing jointly.8Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
To qualify, during the five years before the sale you must have owned the home for at least two years and lived in it as your primary residence for at least two years. The two years don’t have to be consecutive, and you can only use the full exclusion once every two years. Only gain above the exclusion is taxed at the long-term rates.
If You Inherited the Property
Inherited property gets very different treatment. Under Section 1014, your tax basis is “stepped up” to the property’s fair market value on the date the previous owner died.9Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Appreciation during the deceased owner’s lifetime is effectively erased for capital gains purposes.
If your parent bought a home for $100,000, it was worth $400,000 when they passed, and you sell it for $420,000, your taxable gain is $20,000, not $320,000. The sale is automatically treated as long-term regardless of how long you personally held it. Stepped-up basis applies to property received through a will, a revocable living trust, or joint tenancy with right of survivorship for the deceased owner’s share. It does not apply to property received as a gift during the owner’s lifetime; that carries over the donor’s original basis.
State Tax Sits on Top
Federal rates are only part of the bill. Most states tax capital gains as ordinary income, and state income tax rates generally run from about 2% to over 13% depending on where you live. A handful of states impose no income tax and therefore no state-level capital gains tax. A few others exempt certain capital gains or offer reduced rates for long-term holdings. Add your state rate to the federal figure before treating any of the numbers above as your true tax cost.
Pay Estimated Tax in the Quarter You Close
A large capital gain can produce a bill that far exceeds the withholding from your regular paycheck. The IRS generally expects estimated tax payments during the year if you expect to owe $1,000 or more after subtracting withholding and credits. You can avoid an underpayment penalty by paying at least 90% of your current-year tax liability, or 100% of your prior-year tax, through withholding and estimated payments combined.10Internal Revenue Service. Estimated Taxes
If the sale happens mid-year, you can annualize your income using Form 2210 and make a larger estimated payment for the quarter in which the sale closed rather than spreading it evenly across all four quarters. Waiting until April of the following year is a common and costly mistake, because penalties have been accruing quarterly the whole time.