topic Capital Gains in Get your taxes done using TurboTax

Capital Gains

JDoyle520 — Tue, 10 Feb 2026 11:25:44 GMT

In 2022 I sold a rental property with $288000 in capital gains. My understanding is the capital gains tax should have been 15%, or just over $43K.

Turbotax asked me questions about the sale and my 1099-S. It then filled in Form 4797 Sales of Business Property with $165K as a "Sale of Property Used in a Business" and $123K (for the land) as an "Ordinary Gain."

It then entered the $165K on Form 1040 Line 7 as a "Capital gain", and the $123K on line 8 as "Other income". Both were then added to my W-2 income to get my total income. Then it calculated my tax as if the Capital Gain was just part of my normal income.

As far as I can tell, I ended up paying almost $77K, or 25.8% tax on the gain. What went wrong?

Re: Capital Gains

Mike9241 — Sat, 17 Feb 2024 20:40:57 GMT

first, there is section 1250 (depreciation) recapture which can get taxed at a higher rate. then any portion of the gain that is left is taxed at the applicable capital gain rate. you need to review both the section 1250 recapture worksheet and the capital gain and qualified dividend worksheet.

was land included in the worksheet for the cost of the rental?

first total sales price is allocated between building and land

then the same allocation % is used to allocate selling expenses

sales price allocated to depreciable real estate less related sales expenses less cost plus depreciation allowed or allowable is your capital gain on the depreciable real property. the depreciation can be taxed as high as 25% any remaining capital gain can be taxed at up to 20% depending on your situation

sales price allocated to land less related selling expenses is your capital gain on the land. this too can be taxed up to 20% maybe more

then there may be the net investment income tax form 8960 an added 3.8%

if the property was held less than a year all capital gain income is short-term capital gain subject to the same tax rate as other ordinary income

w can't see exactly what you did but likely you did something wrong.

Re: Capital Gains

JDoyle520 — Thu, 22 Feb 2024 02:05:07 GMT

Thank you for your response. It helped me realize the situation is not as clean as I always imagined it would be. As I have started digging into the schedules and worksheets that TurboTax filled in from my 1099-S, it has become very clear that this is a pretty complicated situation. I now realize that the simple information I provided is not enough for you to give a thorough answer. If I had known how complicated it was, I don't think I would have tried to get an answer on a general forum.

FYI, I owned the house for 34 years and rented it out for 29 years, so it was fully depreciated. I assumed that the sale proceeds were my capital gains and so I would pay long-term capital gains on that amount. How silly of me! I am going to have to study the return in detail to see if I can figure this one out.