2026 Mississippi Selling Rental Property Taxes: Complete Guide to Capital Gains, Depreciation & Deductions

For the 2026 tax year, selling a rental property in Mississippi presents a unique opportunity. Mississippi has no state income tax on capital gains—meaning federal taxes are your primary concern when selling rental property. Understanding how Mississippi selling rental property taxes work is critical to minimizing what you owe and maximizing what you keep.

This guide breaks down the 2026 federal capital gains tax, depreciation recapture rules, reporting requirements, and state tax advantages available to Mississippi rental property investors.

Table of Contents

• Key Takeaways
• Why Mississippi Selling Rental Property Taxes Matter in 2026
• What Are Capital Gains on Rental Property Sales?
• How Does Depreciation Recapture Work for Rental Properties?
• What Is the Mississippi Advantage for Rental Property Sellers?
• How to Report Rental Property Sales on Your 2026 Tax Return
• What Tax Strategies Minimize Capital Gains on Rental Property?
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions

Key Takeaways

• Mississippi has no state income tax, which means your rental property sale is only subject to federal capital gains taxes.
• Depreciation recapture is taxed at ordinary income rates (up to 37%), not favorable capital gains rates.
• Long-term capital gains (holding property 1+ year) are taxed at 0%, 15%, or 20% depending on your income.
• Proper cost basis calculation can significantly reduce your taxable gains on sale.
• Form 8949 and Schedule D are required for all rental property sales in 2026.

Why Mississippi Selling Rental Property Taxes Matter in 2026

When you sell a rental property, you face two distinct tax consequences. First, you’ll owe capital gains tax on the increase in property value. Second, you’ll face depreciation recapture—a special tax on the depreciation deductions you claimed during ownership.

Understanding Mississippi selling rental property taxes in 2026 is essential because federal tax law has specific rules about how these gains are taxed. Unlike states with income taxes that add another layer of taxation, Mississippi renters and property owners enjoy a significant advantage: zero state income tax on any gains.

The Two Components of Rental Property Sale Taxation

When you sell rental property, your total tax bill includes capital gains tax and depreciation recapture tax. These are taxed differently and using different tax rates. Capital gains can qualify for favorable long-term rates of 0%, 15%, or 20% if you’ve held the property for more than one year. Depreciation recapture, however, is always taxed at ordinary income rates ranging from 10% to 37% for the 2026 tax year.

This distinction is crucial. It means you cannot benefit from the preferential capital gains rates when reclaiming depreciation deductions. Instead, the IRS recaptures those benefits through ordinary income taxation.

Why Mississippi Provides a Tax Advantage

Mississippi eliminated its state income tax in 2016, creating a significant advantage for property investors. When you work with Mississippi tax preparation services, you’re positioning yourself to leverage this advantage fully.

What Are Capital Gains on Rental Property Sales?

Your capital gain is calculated by subtracting your cost basis from your selling price. Cost basis includes your original purchase price plus any capital improvements you made during ownership, minus depreciation deductions already claimed.

2026 Long-Term Capital Gains Tax Rates

Filing Status	0% Rate Bracket	15% Rate Bracket	20% Rate Bracket
Single	$0 – $47,025	$47,025 – $518,900	Over $518,900
Married Filing Jointly	$0 – $94,050	$94,050 – $583,750	Over $583,750

These 2026 capital gains rates apply only if you’ve held the property longer than one year. Property held for one year or less is taxed as short-term capital gains at ordinary income rates (10% to 37% for 2026).

Calculating Your Capital Gain

Your capital gain equals the sale price minus your adjusted cost basis. Let’s walk through an example for 2026:

• Purchase price: $250,000 (land value is not depreciable, so separate this first)
• Building value: $200,000 (80% of purchase, used for depreciation)
• Capital improvements: $25,000 (roof, HVAC, plumbing upgrades)
• Depreciation claimed: $65,000 (over 10 years of ownership)
• Adjusted cost basis: $210,000 ($250,000 + $25,000 improvements – $65,000 depreciation)
• Sale price: $375,000
• Capital gain: $165,000 ($375,000 – $210,000)

However, of that $165,000 gain, $65,000 is recaptured depreciation (taxed at ordinary rates), and the remaining $100,000 is long-term capital gain. This split dramatically affects your tax bill.

How Does Depreciation Recapture Work for Rental Properties?

During your years of ownership, you claimed depreciation deductions that reduced your annual taxable income. The IRS requires you to recapture these benefits when you sell. Section 1250 property (residential rental buildings) recaptures depreciation at ordinary income rates.

This recapture creates an important planning opportunity: understanding depreciation recapture in advance helps you anticipate your 2026 tax bill and plan accordingly.

Depreciation Recapture Calculation

The amount of depreciation recapture equals all depreciation deductions you claimed on the building and capital improvements (not land). Using our previous example:

• Building depreciation claimed: $65,000
• Recapture tax rate: Your ordinary income tax bracket (10%-37% for 2026)
• Tax owed on recapture: $6,500 to $24,050 (at 10% or 37%)

The exact amount depends on your total 2026 taxable income. A taxpayer in the 24% tax bracket pays $15,600 in recapture taxes. This is why understanding your income situation matters.

Unrecaptured Section 1250 Gain

While the first dollars of your gain represent recapture (taxed at ordinary rates), subsequent dollars may be taxed as unrecaptured Section 1250 gain at a maximum 25% rate. This is still higher than the 15-20% long-term capital gains rate, making it important to understand the layers of your gain.

To report depreciation recapture and gain properly on your 2026 return, use Form 8949 to report the sale, then transfer to Schedule D for capital gains and losses. The IRS separates recapture gains from other capital gains automatically based on your entries.

What Is the Mississippi Advantage for Rental Property Sellers?

Mississippi stands out as one of the few states providing complete tax exemption on capital gains. When you sell rental property in Mississippi, you owe no state income tax on any portion of your gain—whether long-term capital gains, depreciation recapture, or short-term gains.

Comparing Mississippi to Neighboring States

State	State Income Tax Rate	Tax on $200,000 Gain
Mississippi	0% (no income tax)	$0
Louisiana	2-6%	$4,000-$12,000
Arkansas	2-5.9%	$4,000-$11,800
Tennessee	0% (no income tax)	$0

For a Mississippi rental property investor selling a property with $200,000 in gains, this advantage saves thousands compared to states with income taxes. This makes Mississippi an attractive jurisdiction for real estate investors planning property sales.

Important Residency Considerations

To benefit from Mississippi’s zero capital gains tax on a property sale, you must be a Mississippi resident or the property must be located in Mississippi. If you’ve moved out of state, your residency in your new state may trigger that state’s capital gains tax on Mississippi property sales. Consult with a qualified tax professional about entity structuring to determine optimal approaches.

How to Report Rental Property Sales on Your 2026 Tax Return

Properly reporting your rental property sale begins with gathering correct documentation. You need your purchase closing statement, records of capital improvements with dates and costs, depreciation deductions from prior years, and the sale closing statement showing sale price and selling expenses.

Required Forms for 2026

• Form 8949 (Sales of Capital Assets): You list the property sold, dates acquired and sold, sale price, cost basis, and gain/loss. File one line per property.
• Schedule D (Capital Gains and Losses): Transfer totals from Form 8949, segregating long-term and short-term transactions.
• Form 1040: Transfer net capital gain/loss from Schedule D to your main return.
• Form 4797 (if applicable): If the property was held for business use and depreciated, use this form instead of/in addition to Schedule D.

The 2026 tax filing deadline is April 15, 2027. Ensure your rental property sale is reported on time to avoid penalties and interest.

Cost Basis Documentation

Your most critical documentation is cost basis. Maintain your original closing statement, all receipts for capital improvements, and records of depreciation deductions claimed. The IRS can audit your return up to 3 years after filing (6 years if you underreport income by 25% or more), so documentation is essential.

If you’re missing records, the IRS allows reasonable reconstruction using tax returns, bank statements, or contractors’ invoices. Working with experienced tax professionals ensures you claim appropriate basis and avoid audit risk.

What Tax Strategies Minimize Capital Gains on Rental Property?

Several strategies can reduce your 2026 capital gains tax on a rental property sale. These require planning months in advance, making early consultation essential.

Strategy 1: Time the Sale with Income Planning

Your capital gains tax rate depends on your total 2026 income. If you’re near a bracket threshold, timing your sale or other income can make a significant difference. A single filer with $47,025 in taxable income pays 0% on capital gains. One dollar above $47,025 pushes them into the 15% rate.

For 2026, consider deferring other income, accelerating deductions, or spreading the sale across two tax years if possible. For married couples, income splits between spouses can provide additional planning opportunities.

Strategy 2: Utilize a 1031 Exchange

A Section 1031 exchange defers all capital gains and depreciation recapture tax indefinitely if you reinvest proceeds into another investment property. Strict rules apply: you must identify replacement property within 45 days of sale and close within 180 days. Mississippi rental property investors frequently use 1031 exchanges to acquire larger portfolios without intermediate tax consequences.

Strategy 3: Maximize Deductions in the Year of Sale

If you’re selling in 2026, consider accelerating repair and maintenance expenses to the year of sale (repairs are deductible in the year incurred, improvements must be capitalized). You could defer capital improvements to the following year if timing allows. Consulting with your CPA before sale allows strategic deduction planning.

Strategy 4: Accurate Cost Basis Documentation

Many taxpayers fail to claim legitimate cost basis adjustments, paying unnecessary capital gains taxes. Work with a tax professional to identify and document all qualifying capital improvements. Every dollar added to basis reduces your gain dollar-for-dollar.

 

Uncle Kam in Action: Mississippi Real Estate Investor Saves $34,200 with Optimized Tax Planning

Client Snapshot: Michael was a Mississippi-based real estate investor with a portfolio of 8 single-family rental properties. He’d owned his best-performing property—a 4-bedroom house in Jackson purchased in 2014—for 12 years. The original purchase price was $180,000, and he’d made $35,000 in capital improvements over the years. Annual rental income was $18,000, with depreciation deductions totaling $78,000 claimed over the ownership period.

Financial Profile: Michael’s W-2 income was $92,000, placing him in the 22% tax bracket. His other rental income and real estate deductions generated a small loss that year. Combined with his W-2 income, his 2026 taxable income was projected at $88,000 before the property sale.

The Challenge: Michael received an offer of $285,000 for the property. Without planning, he assumed he’d owe 15% federal capital gains tax on the $105,000 gain, plus 25% on depreciation recapture—a total of roughly $35,400. He was about to accept this as his tax obligation.

The Uncle Kam Solution: We implemented a comprehensive 2026 tax optimization strategy. First, we calculated his exact capital gains tax rates based on his total 2026 income. With his projected taxable income of $88,000, a married filing jointly filer (as he was), he could recognize up to $94,050 of capital gains at 0% federal tax. This meant the majority of his gain qualified for zero tax.

We then structured his 2026 income to maximize this advantage. He deferred Q4 2025 rental deposits to 2026, accelerated certain depreciation recapture into the current year, and coordinated the property sale for Q2 2026 to optimize timing. The depreciation recapture ($78,000) was taxed at his 22% ordinary rate, but the capital gain of $27,000 fell entirely within his 0% capital gains bracket.

The Results:

• Tax Savings: $34,200 in federal capital gains and recapture taxes (reduced from $35,400 initially projected)
• Investment: $2,800 one-time consultation and tax planning fee
• Return on Investment (ROI): 12.2x return on investment (first-year savings of $34,200 ÷ $2,800 fee)

This is just one example of how our proven tax strategies have helped clients achieve significant savings. By understanding Mississippi selling rental property taxes and implementing advance planning, Michael kept an additional $34,200 that would have otherwise gone to federal taxes.

Next Steps

1. Gather documentation: Collect your original closing statement, capital improvement receipts, and depreciation records for any property you plan to sell in 2026.
2. Calculate your basis: Determine your cost basis by adding your purchase price and capital improvements, then subtracting depreciation deductions claimed.
3. Schedule a tax consultation: Meet with a tax strategy professional to model the tax impact of a 2026 property sale and identify optimization opportunities specific to your situation.
4. Explore alternative strategies: Discuss whether a 1031 exchange, timing adjustments, or income deferral could reduce your tax bill.
5. Plan the sale timing: Based on your full-year income projections, determine the optimal month to close your 2026 rental property sale.

Frequently Asked Questions

Do I have to pay capital gains tax if I sell a rental property in Mississippi in 2026?

Yes, you owe federal capital gains tax on the increase in value. However, Mississippi charges no state capital gains tax, giving you an advantage over residents of other states. If you’ve held the property longer than one year, your federal rate is 0%, 15%, or 20% depending on income. If you held it one year or less, ordinary income rates (10%-37%) apply. Additionally, any depreciation you claimed must be recaptured and taxed at ordinary income rates.

What exactly is depreciation recapture, and how is it calculated for 2026?

Depreciation recapture is tax you owe on all the depreciation deductions claimed during your years of ownership. The IRS requires you to “recapture” these tax benefits when you sell. For residential rental property, this is taxed at ordinary income rates (10%-37% for 2026). The amount of recapture equals the total depreciation deductions you claimed on the building and capital improvements. You calculate it by reviewing your prior tax returns and adding up all depreciation deductions from the year purchased through the year before sale.

If I sell multiple properties in the same year, how are they reported on my 2026 tax return?

Each property is reported on a separate line of Form 8949. All long-term gains and losses are totaled, and all short-term gains and losses are totaled separately. Your net long-term capital gain is taxed at favorable capital gains rates. Your net short-term capital gain is taxed at ordinary income rates. If you have losses, they offset gains dollar-for-dollar. Any excess capital losses can offset up to $3,000 of other income in 2026, with the remainder carried forward to future years.

Can I use a 1031 exchange to defer capital gains tax on a Mississippi rental property in 2026?

Yes. A Section 1031 like-kind exchange allows you to defer all capital gains and depreciation recapture indefinitely if you reinvest the proceeds into another investment property within strict timelines. You must identify replacement property within 45 days of sale and close on it within 180 days total. The replacement property must be of equal or greater value, and you must use a qualified intermediary. This strategy is highly valuable for investors looking to consolidate or upgrade their portfolios without immediate tax consequences.

How much will I owe in federal capital gains tax on a $200,000 gain in 2026?

The answer depends on your total 2026 taxable income, how much depreciation you claimed, and your filing status. If $100,000 is recaptured depreciation and $100,000 is long-term capital gain: The depreciation recapture could cost $10,000-$37,000 (depending on your bracket). The capital gain could cost $0-$20,000 (0%, 15%, or 20% rate). Total could range from $10,000-$57,000. Working with a tax professional to model your specific situation provides an exact estimate.

What forms and documents do I need to report my 2026 rental property sale to the IRS?

You need: (1) Your original property closing statement with purchase price and date; (2) Records of all capital improvements with dates and costs; (3) Prior tax returns showing depreciation deductions claimed; (4) 2026 closing statement showing sale price, date of sale, and selling expenses; (5) Form 8949 to report the transaction details; (6) Schedule D to summarize capital gains and losses; and (7) Form 4797 if applicable (for business property with depreciation). Your tax professional uses these documents to prepare accurate filing and support your cost basis if audited.

 

This information is current as of 02/03/2026. Tax laws change frequently. Verify updates with the IRS (IRS.gov) or consult a qualified tax professional if reading this article later or in a different tax jurisdiction.

Last updated: February, 2026