When you sell a rental property, the tax treatment is a little more complex than just paying a flat capital gains rate.
Because this was a rental property, you likely claimed (or were required to claim) depreciation over the 23 years you owned it. When you sell, the IRS requires you to "recapture" that depreciation. Depreciation recapture is taxed at a maximum rate of 25%, not the lower long-term capital gains rate.
So your gain is typically split in two parts:
- Depreciation recapture - taxed up to 25%
- Remaining gain - taxed at long-term capital gains rates (0,15, 20% depending on your income)
TurboTax includes both parts of your total income to determine your tax bracket, but that doesn't mean all of it's taxed as ordinary income.
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