Brooklyn Capital Gains Taxes 2026: A Complete Guide for Real Estate Investors
As a Brooklyn real estate investor, capital gains taxes in 2026 are a crucial factor in your strategy. This complete guide details federal tax brackets, how to distinguish short-term vs long-term capital gains, depreciation recapture, exclusions on your Brooklyn primary residence, net investment income tax, key 1031 exchange strategies, expert case studies, and step-by-step advice tailored to maximize your after-tax returns.
Table of Contents
- Quick Takeaways
- 2026 Federal Capital Gains Tax Rates
- Short-Term vs Long-Term Capital Gains
- Depreciation Recapture
- Primary Residence Exclusions
- Net Investment Income Tax (NIIT)
- 1031 Exchange Strategies
- Case Study: Brooklyn Investor
- Next Steps & Planning
- FAQ
- Related Resources
Quick Takeaways
- Federal long-term capital gains rates for 2026: 0%, 15%, and 20%
- Short-term gains: taxed as ordinary income (up to 37%)
- Depreciation recapture applies at 25%
- Primary residence exclusion: up to $500,000
- 1031 exchanges defer taxes on investment property
- High earners may owe a 3.8% NIIT
2026 Federal Capital Gains Tax Rates
Capital gains on Brooklyn real estate are taxed at preferential rates if you’ve owned the property over one year. Here’s a summary table:
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,026–$533,400 | $533,401+ |
| Married Filing Jointly | Up to $94,050 | $94,051–$600,050 | $600,051+ |
Asset holding period matters. Gains from assets held longer than one year qualify for the above rates. Shorter holding periods are taxed higher.
Short-Term vs Long-Term Capital Gains
If you buy and sell Brooklyn real estate in under a year, you’re subject to the ordinary federal tax rate (as high as 37% in 2026). Waiting over a year cuts your federal tax to 0–20%. Document your holding period carefully—use closing documents and deed records.
Depreciation Recapture for Brooklyn Investors
If you’ve claimed depreciation on a Brooklyn rental or investment property, Section 1250 of the tax code requires you to recapture that benefit at a 25% rate when you sell the property. Example:
| Component | Amount | Tax Rate |
|---|---|---|
| Depreciation Recapture | $100,000 | 25% |
| Remaining Gain | $50,000 | 15% |
Depreciation recapture can significantly impact your tax bill. Consider strategies like 1031 exchanges to defer it.
Primary Residence Exclusions
If your Brooklyn property was your primary residence for 2 of the last 5 years, you may exclude up to $250,000 of gain if single or $500,000 if married filing jointly. The exclusion only applies to profit attributable to the period of primary residence. Gains accrued during rental periods typically do not qualify.
Net Investment Income Tax (NIIT)
If your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly), you may owe a 3.8% surtax on capital gains. This is in addition to regular capital gains tax rates.
1031 Exchange Strategies for Brooklyn Investors
Section 1031 exchanges allow Brooklyn real estate investors to defer capital gains and recapture taxes by swapping one investment property for another “like-kind” property. Rules are strict: you must identify replacement property within 45 days and close within 180 days.
- Use a qualified intermediary
- Replacement property must be of equal or greater value
Case Study: Brooklyn Investor Saves $47,500
Maria owned a 4-unit property in Park Slope, Brooklyn, purchased for $650,000. Over 12 years, she depreciated $200,000 and sold in 2026 for $950,000. Her projected taxes (capital gain + recapture + NIIT) approached $85,000. Working with a Brooklyn tax advisor, she:
- Structured a 1031 exchange into new property, deferring $300,000 in gains
- Eliminated $6,200 in NIIT by coordinating income recognition
- Reduced her federal capital gains bill by over $47,000
- Paid $3,500 for tax planning, with a 1,300% first-year ROI
Next Steps & Planning
- Estimate your gain and holding period—review purchase, sale, and depreciation records
- Consult with a Brooklyn real estate tax expert before listing your property
- Consider 1031 exchange options, especially for large gains
- Compile documentation early: deeds, closing statements, depreciation schedules
- Schedule your tax review for 2026 at Brooklyn tax advisory
Frequently Asked Questions
What is the difference between realized and recognized gains?
Realized gain is the gross profit from a sale; recognized gain is the portion you pay tax on, after adjustments or exclusions.
Can I offset capital gains with losses from other sales?
Yes. Losses on one property can offset gains on another dollar for dollar. Excess losses (up to $3,000/year) can reduce other taxable income, with the remainder carried forward.
How does the step-up in basis work for inherited Brooklyn property?
If you inherit property, your basis “steps up” to its market value on the date of death. No capital gains are owed on prior appreciation if you sell soon after inheriting.
Are short-term real estate gains self-employment income?
No, but they are taxed as ordinary income. Only if you are classified as a dealer (flipping as a business) would self-employment tax potentially apply.
Does converting my primary residence to a rental affect my exclusion?
Yes. Only appreciation during primary residence years is excluded; gains from rental periods may be taxable.
Related Resources
- Real Estate Investor Tax Strategies Guide
- Entity Structuring for Real Estate
- Year-Round Tax Advisory
- Client Results
- Tax Strategy Services
- Brooklyn Tax Advisor Services
- IRS: Capital Gains and Losses
- IRS Pub 523: Selling Your Home
Tax law as of February 2026—consult an advisor for recent updates.
