topic Selling a rental property in Business & farm

Selling a rental property

tcampbe962 — Sat, 21 Feb 2026 01:43:12 GMT

After 23 years of owning a rental property, I sold it this past year. I assumed I was going to pay Capital gains on the sale of it. Instead, TurboTax is listing it as income and I am getting walloped at a high tax bracket. Is this correct? I thought I would just pay the 20% Capital gains on it.

Re: Selling a rental property

CesarJ — Sat, 21 Feb 2026 15:00:26 GMT

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.

Re: Selling a rental property

tcampbe962 — Sat, 21 Feb 2026 17:26:20 GMT

Thank you for the help! Yes, in the last 24 hrs., I've learned about recapture (and it definitly hurts - haha). However, In my case (using rough numbers) - my recapture was $70k....my gain was $120k. Yet it is entered on 1040 line 7a as $190k. Is that correct? It just increased my taxable income by $190k at my bracket which is higher than both recapture or capital gains. Unless TT does some behind the curtain calculating that I don't know about....in which case, how do I verify it?

Thanks!!!

Tim

Re: Selling a rental property

DianeW777 — Mon, 23 Feb 2026 14:50:16 GMT

It depends. Form 4797 will sort it out as far as capital gain and the portions taxed at different rates. For rental property (not any appliances or equipment not attached to the building) also has a capital gain rate. Any gain in excess of the recapture amount will be taxed as indicated by @CesarJ at the capital gains tax rates.

The $70k would be taxed as Section 1250 property and has a maximum rate of 25%. If your total gain was $120K including the recapture amount then you should not see $190 on your form 1040, Line 7a. If the combined gain is $190k then you do see the correct amount.

The amount of gain up to the amount of depreciation claimed would be subject to a maximum rate of 25%, while any excess gain if applicable, would receive the lower 0% - 20% depending on income level, if the holding period was greater than one year. Both of these amounts will end up on Schedule D, then Form 1040. It begins on Form 4797 and transfers.

Can I print a copy of my return before I file it?

@tcampbe962