The gain is not
sale price minus purchase price
Basis rises with what you spent on the property and falls with the depreciation you claimed. Owners who never tracked either pay tax on money they did not make.
Before you read on
- General information, not tax advice. Rates and thresholds change and outcomes depend entirely on individual circumstances.
- Take advice from a US CPA, and where a treaty may apply, from an adviser in your own country as well.
Step 1Working out the gain
Four numbers, and two of them require records you should have been keeping since the day you bought.
| Line | Example | Note |
|---|---|---|
| Sale price | $2,400,000 | The contract price |
| Less selling costs | −$150,000 | Commission, transfer taxes, attorney, flip tax |
| Amount realised | $2,250,000 | |
| Original purchase price | $1,700,000 | What you paid |
| Plus purchase closing costs | +$40,000 | Title, recording, attorney — not the mortgage costs |
| Plus capital improvements | +$120,000 | A new kitchen, a new roof, an extension — not repairs |
| Less depreciation taken or allowable | −$185,000 | Applies to let property, whether or not you claimed it |
| Adjusted basis | $1,675,000 | |
| Taxable gain | $575,000 | Of which $185,000 is recaptured depreciation |
The phrase 'taken or allowable' matters. Depreciation you were entitled to claim reduces your basis even if you never claimed it, so failing to depreciate a rental costs you twice.
Step 2The rates that apply
Preferential federal rates apply to property held more than twelve months — currently brackets of 0%, 15% and 20% depending on total income. Held for a year or less, the gain is taxed at ordinary income rates instead.
The portion of the gain attributable to depreciation is taxed at up to 25% federally, ahead of the ordinary capital gains rate. It is the part investors most often forget to model.
An additional federal charge on investment income above income thresholds. It applies to US persons; whether it reaches a particular non-resident depends on their circumstances.
New York State taxes gains as ordinary income and New York City adds its own tax on residents. Florida, Texas and several other states impose none. On a large gain this is the single biggest geographic variable.
Step 3What counts as an improvement, and what does not
| Spent on | Adds to basis | Why |
|---|---|---|
| New kitchen, new bathroom | Yes | Betterment with a useful life beyond a year |
| Roof replacement, new boiler, new windows | Yes | Restoration of a major component |
| Extension, added bathroom, finished basement | Yes | Adds to the property |
| Special assessment for a building capital project | Usually yes | Keep the board's letter describing the work |
| Repainting, patching, replacing a broken tap | No | Repair and maintenance |
| Cleaning, gardening, pest control | No | Operating cost |
| Appliances in a rental | Depreciated separately | Different schedule, not added to the building basis |
| Mortgage interest and property tax | No | Deductible in the year, not capitalised |
Keep every invoice, contract and cancelled cheque for the whole ownership period. A $120,000 improvement history you cannot evidence is roughly $25,000 of tax you pay unnecessarily.
Step 4Four ways the bill is legitimately reduced
| Route | What it does | Conditions |
|---|---|---|
| Principal residence exclusion | Excludes up to $250,000 of gain, $500,000 for a couple filing jointly | Main home for two of the last five years; rarely available to non-residents |
| 1031 exchange | Defers the gain into a replacement investment property | 45 days to identify, 180 to close, a qualified intermediary from the outset |
| Holding past twelve months | Long-term rather than ordinary rates | Simple, and frequently decisive on a short hold |
| Offsetting capital losses | Reduces the taxable gain | Timing of other disposals in the same year |
| Installment sale | Spreads the gain across years | Seller financing, with its own risks |
| Step-up in basis on death | Basis resets for heirs | Interacts with estate tax, which for non-residents starts at a $60,000 exemption |
A 1031 exchange has to be set up before the sale closes. Once the proceeds have touched your account the exchange is dead, and that mistake is made every year by sellers who heard about it a week too late.
Yes. Gain on US real property is taxed in the US regardless of where the owner lives, and FIRPTA withholding at closing exists to make sure the tax is collected.
Your own country may tax the same gain and typically gives credit for US tax paid, under a treaty where one exists. It needs advice on both sides, ideally before the sale.
Your basis is still reduced by what was allowable. There is a procedure to correct missed depreciation; a CPA can advise whether it applies to you.
Only partly, and only if it was also your main home for two of the last five years. Depreciation taken during the rental period is recaptured regardless.
For the whole period of ownership plus at least three years after the sale is filed. Improvement receipts are the ones that pay for themselves.
Let’s talk first
Tell us what you paid, what you spent and when you bought, and we will map the likely tax position and introduce a CPA before you list.
RELATED GUIDES
Recent transactions
A sample of the sales, purchases and rentals we acted on in 2025 and 2026.
Real estate brokerage services are provided through R New York.
Important notice
The figures on this page are general information as of August 2026 and do not represent an offer, a quote, or a guarantee of any transaction terms. Reinvent NY does not provide legal, tax, or investment advice. Confirm anything material with an attorney and a CPA before you act on it. Nothing here is a solicitation to invest, and no return is promised. Real estate brokerage services are provided through R New York.