The direct answer
Selling a depreciated rental property can produce gain that is taxed differently from ordinary long-term capital gain because prior depreciation affects adjusted basis and can create unrecaptured section 1250 gain or other depreciation-related gain treatment. The exact result depends on the property, depreciation history, sale allocation and current tax rules.
Start with adjusted basis
Gain is generally measured from amount realized against adjusted basis. Depreciation allowed or allowable can reduce basis over the holding period, increasing the taxable gain compared with an otherwise identical nondepreciated basis.
To apply the approach to an editable scenario, use the Home Sale / Seller Net Proceeds Calculator. For the neighboring question, explore Rental Property Calculator.
Separate depreciation-related gain from the rest
Publication 544 explains the treatment of depreciable property dispositions. Different portions of gain can be subject to different tax rules, so a single “capital gains rate” assumption can be misleading.
Include selling costs and property components
Selling expenses can affect amount realized, while personal property or other components can have different recapture rules. A property-level model should not substitute for the actual federal tax calculation.
Worked example
If a rental building had $300,000 of original depreciable basis and $70,000 of depreciation deductions over time, its adjusted building basis is lower before considering other adjustments. A later sale gain calculation therefore cannot ignore the depreciation history.
Open Home Sale / Seller Net Proceeds Calculator and test your assumptions →
Common mistakes and limitations
Do not estimate tax on a rental-property sale by applying one capital-gains percentage to gross sale proceeds.
Estimate only; actual payoff statements, taxes, title/escrow charges and local transaction costs can differ.
Frequently asked questions
Does depreciation affect gain when I sell a rental?
Yes. Depreciation generally reduces adjusted basis and can affect the character and tax rate applied to part of the gain.
Is all gain on a rental sale taxed at the same rate?
Not necessarily. Depreciation-related gain and other gain can receive different federal tax treatment.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- IRS — Publication 527 (2025), Residential Rental PropertyRental income and expense concepts; operating/rental expense context.
- IRS — Publication 544 (2025), Sales and Other Dispositions of AssetsGain or loss on disposition, depreciation-related gain treatment and like-kind exchange concepts for business and investment real estate.
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