Real Estate Tax Planning
Capital gains, depreciation recapture, surtaxes, opportunity zones, passive losses and basis step-up: the tax rules that decide whether a sale should be an exchange.
Most sellers start with a tax question, not an exchange question: how much will I owe, which layer is taxed at what rate, what changed in the 2025 tax act. These pages answer the tax question first, with the current-year numbers and the forms, and then show where an exchange, an opportunity zone fund or a bonus depreciation fund changes the answer.
Figures are checked against the IRS revenue procedures and statutes cited on each page and carry a last-reviewed date.
Annual numbers
2026 Tax Numbers for Real Estate Sellers: Brackets, Thresholds and Limits
Every 2026 figure a property seller needs: 0/15/20% gains breakpoints, NIIT, ordinary brackets, estate and gift limits, Medicare IRMAA tiers, SALT cap, QBI and 179.
ReadThe 2025 Tax Act for Real Estate Investors: Bonus Depreciation, Opportunity Zones, SALT and 1031
What Public Law 119-21 changed for owners: 100% bonus depreciation from January 20, 2025, permanent opportunity zones, a $40,400 SALT cap, 1031 untouched.
ReadThe QBI Deduction for Landlords: Safe Harbor and Triple-Net Exclusion
Landlords get the 20% section 199A deduction only if the rental is a trade or business: the 250-hour safe harbor, the triple-net exclusion, 2026 thresholds, DSTs.
ReadThe SALT Cap in 2026 and Rental Property Taxes
The 2026 SALT cap is $40,400, phasing to $10,000 above $505,000 of MAGI, but a rental's property taxes go on Schedule E outside the cap. Where the line falls.
ReadDepreciation and recapture
Bonus Depreciation Rules in 2026: 100% Restored and What Real Estate Qualifies
Property acquired after January 19, 2025 gets 100% bonus depreciation again. Buildings never qualify; components, land improvements and interior work can.
ReadCatch Up Missed Depreciation Before a Sale With Form 3115
Skipped depreciation still reduces basis. File Form 3115 under automatic change 7 by the sale year and deduct the whole missed amount as a section 481(a) adjustment.
ReadCost Segregation Before Selling: Does It Help or Hurt?
In the sale year a study mostly swaps a deduction for ordinary recapture. It helps when the deduction came years earlier or the replacement has 1245 assets.
ReadDepreciation on Land Improvements: Parking, Fencing, Landscaping
Parking lots, fences, sidewalks and landscaping are 15-year property eligible for 100% bonus in 2026, but bonus is recaptured as ordinary income at sale.
ReadDepreciation Recapture on Gifted Property
A gift does not trigger recapture, but it does not erase it. The donor's depreciation rides along in your carryover basis and is taxed when you sell.
ReadDepreciation Recapture Tax Rate in 2026
Building depreciation is taxed at your ordinary rate capped at 25%; component and equipment depreciation at up to 37%. 2026 brackets, stacking and deferral.
ReadPartial Asset Dispositions and Real Estate Sales
A partial asset disposition election lets you write off the remaining basis of a replaced roof or HVAC unit, but only on the return for the year it was replaced.
ReadResidential vs Nonresidential Depreciation: 27.5 vs 39 Years
A building gets 27.5-year residential depreciation only if 80% of gross rents come from dwelling units; all others take 39 years. Mixed-use and post-exchange rules.
ReadSection 1245 Recapture on Real Estate: Cost Segregation and Land Improvements
Cost segregation creates section 1245 property. At sale its depreciation is ordinary income, up to 37% in 2026, and a 1031 exchange rarely defers that layer.
ReadCapital gains on real estate
Capital Gains on a House Flip (Why It Is Usually Ordinary Income)
A flip bought to resell is not a capital asset: profit is ordinary income up to 37%, often with 15.3% self-employment tax, and the house cannot be exchanged.
ReadCapital Gains on Real Estate Held in an LLC
An LLC does not change the capital gains rate on real estate unless it elected corporate tax. How each LLC type reports a sale and how a 1031 works at entity level.
ReadCapital Gains on Real Estate Sold by a Trust or Estate
A trust or estate pays 20% on gain above $16,250 and the 3.8% surtax above $16,000 in 2026 unless gain goes to beneficiaries. Brackets, DNI and a trustee's 1031.
ReadCapital Gains Tax on a Land Sale
Land held for investment over a year is taxed at 0%, 15% or 20% with no depreciation layer, plus 3.8% NIIT. Subdividing can make it ordinary income instead.
ReadCapital Gains Tax on a Second Home
A second home gets no home-sale exclusion: gain is taxed at 0%, 15% or 20% plus 3.8% NIIT, and a loss is not deductible. Moving in or renting it first changes that.
ReadCapital Gains Tax on a Vacation Rental
A vacation rental sale has two gains: a rental share with a 25% depreciation layer and a personal share with no loss allowed, plus a 1031 safe harbor.
ReadCapital Gains Tax on Commercial Property
A commercial sale carries a 25%-capped recapture layer, ordinary income on cost-segregated parts, 15% or 20% on the rest, NIIT, and 21% in a C corporation.
ReadCapital Gains Tax on Inherited Property
Inherited real estate takes a basis equal to its value at death and is always long-term, so only growth after death is taxed. When the step-up is partial and why.
ReadCapital Gains Tax on Rental Property in 2026: Rates, Layers and a Worked Example
Rental gains are taxed at 0%, 15% or 20%, depreciation up to 25%, plus 3.8% NIIT and state tax. The 2026 breakpoints, a worked example and what a 1031 defers.
ReadShort-Term Capital Gains on Real Estate Sold Within a Year
Real estate held one year or less is taxed at ordinary rates up to 37% in 2026, plus the 3.8% surtax. How the year is counted, the rental twist, when waiting pays.
ReadState Capital Gains Rates on Real Estate: All 50 States Compared
Nine states tax no real estate gain, nine give gains a break and the rest tax them as ordinary income, up to 13.3% in California. Every state's 2026 rate, compared.
ReadTaxes When an Estate Sells a Rental Before Distribution to Heirs
An estate selling a rental reports it on Form 1041 from the date-of-death value. Who pays depends on the year of sale, and a loss reaches heirs only at the end.
ReadThe 20 Percent Capital Gains Threshold: When the 20% Rate Applies in 2026
The 20% rate starts above $613,700 joint or $545,500 single in 2026; the 3.8% surtax makes it 23.8%. How a property gain stacks across 15%, 20% and 25%.
ReadThe Zero Percent (0%) Capital Gains Bracket and Real Estate Sales
In 2026 long-term gain is taxed at 0% up to $98,900 joint or $49,450 single. How a sale stacks, why depreciation never gets 0%, and sizing a partial exchange.
ReadSale mechanics
Capital Gains on Property Jointly Owned With a Non-Spouse: Siblings, Friends and Partners
Co-owners who are not married each report their own share of the price against their own basis, at their own rates. One can exchange while the other cashes out.
ReadInherited It, Rented It for Years, Now Selling: Basis and Recapture
Basis is the date-of-death value. Only depreciation claimed since then is recaptured at up to 25 percent; the rest is long-term gain. A 1031 defers both.
ReadSelling a Rental to a Family Member Below Market: Gift of Equity and Tax
A below-market sale to family is part sale, part gift. You owe tax on the price over basis, report the discount on Form 709, and the buyer keeps your low basis.
ReadSelling Expenses, Improvements and Basis: What Reduces the Taxable Gain
Selling expenses cut the amount realized and capital improvements raise basis, but only with records. Deducted repairs and depreciation do not lower the gain.
ReadSelling Property Owned 30 Years or More With No Basis Records
You must prove your basis, but decades of ownership often make the lost records matter less than you fear. Rebuild it from deeds, returns and assessor data.
ReadTaxes When Selling a Second Home
Gain on a second home is capital gain with no home-sale exclusion, a loss is not deductible, and the 3.8% tax can apply. A rental conversion changes the options.
ReadTaxes When Selling Land to a Developer Under an Option or Long Contract
A land option is not a sale. Gain is fixed at closing, credited option money joins the amount realized, and doing the site work yourself risks dealer status.
ReadWhich Closing Costs Are Deductible on a Sale and Reduce Your Gain
Commissions, legal and title fees, recording charges and seller-paid transfer taxes reduce your gain. Mortgage payoffs, tax prorations and deposits do not.
ReadEstate and gift
Community Property Double Step-Up
In the nine community property states, both halves of a couple's community real estate take date-of-death value at the first death, not just one half.
ReadGift Now or Inherit Later: Basis and Tax When Children Receive Real Estate
A gift passes your low basis to your children; an inheritance resets it to value at death. For most families in 2026, leaving the property costs less tax.
ReadPortability of the Estate Exemption and Real Estate Holdings
Portability lets a surviving spouse add the first spouse's unused $15,000,000 exemption to their own, only if Form 706 is filed in time. How it works for landlords.
ReadStep-Up in Basis on Real Estate: How It Works in 2026
Heirs take real estate at date-of-death value, erasing the owner's gain, depreciation recapture and gain deferred by 1031 exchanges. How it works in 2026.
ReadPassive losses
Grouping Rental Activities Under the Passive Activity Rules: The Election and Its Traps
Grouping rentals eases material participation but makes each sale a partial disposition that frees no suspended losses. Disclosure, regrouping and DSTs.
ReadPassive Activity Loss Rules for Landlords
Rental losses are passive by default under section 469 and offset only passive income. The exceptions, how carryforwards work and what releases the losses at sale.
ReadReal Estate Professional Status: The Two Tests and the Election
Over half your working hours and over 750 hours in real property businesses, then material participation in each rental or one aggregation election, with proof.
ReadThe $25,000 Rental Loss Allowance
Up to $25,000 of rental loss offsets wages if you actively participate and own 10 percent. It phases out from $100,000 to $150,000 of MAGI; the rest carries.
ReadThe Short-Term Rental Loophole: Material Participation and Bonus Depreciation
A rental with an average stay of seven days or less is not a rental activity, so if you materially participate its bonus-driven losses can offset wages.
ReadSurtaxes
Net Investment Income Tax (NIIT) and Real Estate Professionals
Real estate professional status alone does not lift rents or sale gain out of the 3.8% NIIT; the rental must be a nonpassive trade or business. DST income stays in.
ReadState Millionaire Surtaxes on Real Estate Gains
One large sale can push a seller over a state's $1 million line for one year. Massachusetts adds 4%, California and Minnesota 1%; New Jersey and DC tax at 10.75%.
ReadOpportunity zones 2.0
New OZ Fund Reporting Requirements for Opportunity Funds and Their Investors
Opportunity funds now file an annual section 6039K return with tract, jobs and housing data, with a $500-a-day penalty for not filing. Forms 8996 and 8997 stay.
ReadOpportunity Zones After the 2025 Tax Act: What Changed and When
The 2025 act made opportunity zones permanent, moved the deferral to five years from the day you invest, added a 30% rural step-up and a new map on January 1, 2027.
ReadOZ Ten-Year and Thirty-Year Rules: The Opportunity Zone Exclusion and Its Outer Limit
Hold an opportunity fund interest ten years and basis becomes fair market value. For post-2026 money that value freezes at year thirty; earlier money runs to 2047.
ReadQOF Due Diligence: Vetting a Qualified Opportunity Fund Before You Invest
A qualified opportunity fund certifies itself, so the 90% test, zone business tests, Form D, fees, tract dates and the 5, 10 and 30-year timeline are yours to check.
ReadQualified Rural Opportunity Funds: The 30% Step-Up
A qualified rural opportunity fund holds 90% of assets in rural zones and gives a 30% step-up at five years instead of 10%. The definition, the 50% rule, the math.
ReadThe 2027 Opportunity Zone Map: New Designations and Expiring Tracts
New opportunity zones take effect January 1, 2027 under a 70% income test; the 2018 tracts run to December 31, 2028. The calendar and what it means for 2026 gains.
ReadThe Opportunity Zone (OZ) Substantial Improvement Test
A fund buying a used building in an opportunity zone must add more than the building's basis within 30 months. Land is excluded; rural zones need 50%.
ReadThe Rolling Five-Year Deferral for Opportunity Zone (OZ) Investments After 2026
For opportunity fund money invested after 2026, deferred gain is taxed at the earliest of a sale, an inclusion event or five years, less a 10% or 30% step-up.
ReadState rules
Selling a Rental in a No-Income-Tax State: What You Still Owe
No state income tax still leaves federal capital gains, recapture and NIIT, a transfer tax in most of these states, and your home state's tax if you live elsewhere.
ReadStates With Capital Gains Surtaxes or Special Rates on Real Estate
Most states tax real estate gains as ordinary income. These add a surtax on high incomes, use their own gains rate or exclude part of the gain.
ReadHave a sale in motion?
Tell us what you are selling and when it closes. An advisor will send a free proposal with replacement options that fit your deadlines and your state's rules.
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