Real estate capital gains tax rates for 2025: Long-term (held >1 year): 0% (income <$47,025 single/$94,050 married), 15% ($47,025-$518,900 single/$94,050-$583,750 married), 20% (>$518,900 single/>$583,750 married).

Short-term (held ≤1 year): Taxed as ordinary income (10-37%).

Additional taxes: Net Investment Income Tax (NIIT) 3.8% on gains if income >$200k single/$250k married.

State taxes: 0-13.3% depending on state.

Total maximum: 20% + 3.8% + 13.3% = 37.1% combined rate.

Primary residence capital gains exclusion: $250,000 single/$500,000 married filing jointly of gain is tax-free if: Owned AND lived in home 2 of last 5 years (730 days, not consecutive), primary residence (not rental/vacation), and not used exclusion in past 2 years.

Partial exclusion available for: job change >50 miles, health issues, or unforeseen circumstances.

Example: Bought $300k, sold $600k = $300k gain.

Married couple excludes entire gain (under $500k), single excludes $250k and pays tax on $50k.

Rental property capital gains = Sale price - Adjusted basis - Selling costs.

Adjusted basis = Purchase price + Improvements - Depreciation taken.

Depreciation recapture: Taxed at 25% rate (separate from capital gains).

Example: Bought $300k, improvements $50k, depreciation $80k, sold $500k.

Adjusted basis: $300k + $50k - $80k = $270k.

Gain: $500k - $270k - $20k costs = $210k.

Tax: $80k × 25% (recapture) + $130k × 15% (capital gain) = $20k + $19.5k = $39,500 federal tax.

1031 like-kind exchange allows deferring capital gains tax by reinvesting in similar property.

Requirements: Investment/business property only (no primary residence), identify replacement within 45 days, close within 180 days, use qualified intermediary, and equal or greater value/debt.

Benefits: Defer federal capital gains (0/15/20%), depreciation recapture (25%), NIIT (3.8%), and state taxes.

Example: Sell $500k property with $200k gain.

Instead of paying $30k tax, exchange into $600k property, defer all taxes, new basis = $400k ($600k - $200k deferred gain).

Inherited property receives stepped-up basis to fair market value at death, eliminating capital gains on appreciation during deceased lifetime.

Example: Parent bought home $100k, worth $500k at death, you inherit.

Your basis = $500k (stepped-up), not $100k.

If sell for $520k, only pay tax on $20k gain, not $420k.

Exception: Gifted property (while alive) keeps donor original basis.

Planning tip: Hold appreciated property until death for heirs tax-free step-up vs. gifting which transfers low basis.

Top strategies to minimize real estate capital gains: (1) Hold >1 year for long-term rates (15% vs 37%), (2) Use primary residence exclusion ($250k/$500k), (3) 1031 exchange to defer indefinitely, (4) Installment sale to spread gain over years, (5) Harvest losses to offset gains, (6) Donate to charity for deduction, (7) Hold until death for step-up basis, (8) Invest in Opportunity Zones (defer until 2027, 10% reduction after 5 years), (9) Time sale in low-income year, (10) Move to no-tax state before sale (establish residency 6+ months).