Lincoln Selling Rental Property Taxes: Complete 2026 Tax Planning Guide

For the 2026 tax year, selling rental property can trigger substantial tax obligations if you don’t plan carefully. Understanding lincoln selling rental property taxes is essential for real estate investors looking to maximize after-tax proceeds. This guide walks you through capital gains calculations, depreciation recapture rules, and new 2026 tax provisions that directly impact your rental property sale strategy.

Table of Contents

• Key Takeaways
• What Happens When You Sell Your Rental Property?
• How Are Capital Gains Taxed When You Sell Your Rental Property?
• What Is Depreciation Recapture and How Does It Affect Your Sale?
• Are You Subject to Net Investment Income Tax on Rental Property Sales?
• What New 2026 Tax Rules Impact Selling Rental Property?
• How Can You Reduce Taxes When Selling Rental Property?
• Uncle Kam in Action: Lincoln Rental Property Success Story
• Next Steps
• Frequently Asked Questions

Key Takeaways

• For 2026, long-term capital gains on rental property are taxed at 0%, 15%, or 20% rates depending on your income level.
• Depreciation recapture triggers ordinary income tax at 25% on previously claimed depreciation deductions.
• Net investment income tax (NIIT) adds 3.8% to gains exceeding $200,000 ($250,000 for married couples filing jointly).
• The One Big Beautiful Bill Act (OBBBA) introduces new planning opportunities and limits for real estate investors in 2026.
• Strategic timing and entity structure optimization can reduce your total tax burden significantly.

What Happens When You Sell Your Rental Property?

When you sell a rental property, the IRS taxes you on the difference between your sale price and your adjusted basis (original purchase price plus improvements, minus depreciation). This seems straightforward, but the calculation involves multiple tax components working together. Many real estate investors in Lincoln and across the country underestimate their total tax exposure when selling rental property for the first time.

The tax consequences of selling rental property fall into three distinct categories: long-term capital gains tax, depreciation recapture tax, and net investment income tax. Each category has different rates and thresholds. Understanding how these three taxes interact is crucial to your 2026 tax planning strategy.

How the Calculation Works for 2026

Start with your adjusted basis, which is your original purchase price plus the cost of improvements. Then subtract all depreciation deductions you claimed during ownership. The remaining amount is your adjusted basis. Subtract this from your sale price to determine your total gain.

For example, if you purchased a rental property for $250,000, made $30,000 in improvements, and claimed $80,000 in depreciation over ten years, your adjusted basis would be $200,000 ($250,000 plus $30,000 minus $80,000). If you sell for $400,000, your total gain is $200,000.

The Three Types of Taxes on Your Gain

• Long-term capital gains tax (0%, 15%, or 20% for 2026)
• Depreciation recapture tax (25% ordinary income rate)
• Net investment income tax (3.8% surtax on high earners)

Understanding these distinctions helps you evaluate whether using a real estate investment strategy makes sense for your situation. The total tax rate on your gain can exceed 40% if all three taxes apply.

How Are Capital Gains Taxed When You Sell Your Rental Property?

Capital gains on real estate held for more than one year receive preferential tax treatment. The IRS taxes long-term capital gains at lower rates than ordinary income, creating significant tax savings for real estate investors. Your capital gains tax rate for 2026 depends on your total taxable income and filing status.

The 2026 long-term capital gains brackets work similarly to ordinary income brackets but with much lower rates. Single filers pay 0% on gains up to $47,025, then 15% on gains from $47,025 to $518,900, and 20% on gains above $518,900. Married couples filing jointly enjoy wider brackets: 0% up to $94,050, 15% from $94,050 to $583,750, and 20% above $583,750.

Capital Gains Rate Brackets for 2026 (Estimated Based on 2025)

Filing Status	0% Rate	15% Rate	20% Rate
Single	$0 – $47,025	$47,025 – $518,900	Over $518,900
Married Filing Jointly	$0 – $94,050	$94,050 – $583,750	Over $583,750
Head of Household	$0 – $62,975	$62,975 – $551,350	Over $551,350

This preferential treatment is why long-term capital gains for 2026 matter so much. A real estate investor in the 15% long-term capital gains bracket saves 20% compared to if the gain were taxed as ordinary income at 35%. When selling rental property, maintaining awareness of your tax bracket prevents unpleasant surprises.

Timing Your Sale to Optimize Capital Gains Rates

Strategic timing of rental property sales in 2026 can help you stay within lower capital gains brackets. If you’re near a bracket threshold, delaying the sale to the next year or accelerating other income could affect your overall tax liability. This is where the Green Bay Self-Employment Tax Calculator becomes valuable for modeling different scenarios.

What Is Depreciation Recapture and How Does It Affect Your Sale?

Depreciation recapture is one of the most misunderstood tax consequences of selling rental property. Many real estate investors focus entirely on capital gains tax while overlooking the separate recapture tax. When you own rental property, the IRS allows you to deduct depreciation annually, reducing your taxable income year after year. But when you sell, the IRS recaptures all those deductions through a 25% tax.

Section 1250 property (real estate) is subject to depreciation recapture at 25% on the amount of depreciation you claimed. This means if you depreciated your property by $80,000 over ten years, you owe approximately $20,000 in depreciation recapture tax when you sell, regardless of whether you have a gain or loss on the property overall.

How Depreciation Recapture Works in 2026

The calculation is straightforward: Take the total depreciation you claimed during your holding period and multiply by 25%. This is your depreciation recapture tax bill. It’s always at the 25% rate—higher earners don’t pay more, and lower earners don’t pay less. The rate stays constant at 25% for 2026 and beyond.

Here’s an example: You bought a rental property for $300,000. You claimed $5,000 in depreciation each year for ten years, totaling $50,000. When you sell, you owe $12,500 in depreciation recapture tax (25% of $50,000), regardless of the sale price. If you break even on the sale, you still owe this tax.

The Interaction with Capital Gains Tax

Your total gain on the sale is split into two parts: the portion attributable to depreciation (taxed at 25%) and the remaining gain (taxed as long-term capital gains). This two-tier system means some of your gain gets taxed at 25% while other parts might be taxed at 15% or 20%.

• First $50,000 of gain: Depreciation recapture at 25% = $12,500 tax
• Remaining $150,000 of gain: Long-term capital gains at 15% = $22,500 tax
• Total tax before NIIT: $35,000 (17.5% effective rate)

This illustrates why depreciation recapture significantly impacts your total tax burden. The combined effect of depreciation recapture and capital gains tax often exceeds what investors anticipate.

Are You Subject to Net Investment Income Tax on Rental Property Sales?

The Net Investment Income Tax adds another 3.8% tax for high-earners on investment income, including rental property sales. This surtax applies to individuals earning above threshold amounts and represents an additional cost to consider. For 2026, NIIT thresholds remain at $200,000 for single filers and $250,000 for married couples filing jointly.

The Net Investment Income Tax is calculated on your net investment income or the excess of modified adjusted gross income over the threshold—whichever is lower. When you sell a rental property, the gain counts as investment income for NIIT purposes. This means high-income earners in Lincoln and nationwide face three separate taxes on rental property sales: capital gains tax, depreciation recapture tax, and NIIT.

Calculating NIIT on Your Rental Property Sale

NIIT applies only to the portion of your gain that exceeds the income threshold. If your modified adjusted gross income for 2026 is $400,000 (single filer), and your rental property gain is $150,000, then $150,000 of your gain is subject to NIIT because your total income exceeds the $200,000 threshold by $200,000.

Calculating your NIIT obligation requires careful analysis of your total income picture. This is why high-net-worth real estate investors should engage professional tax planning before selling significant properties. The 3.8% surtax might not sound like much, but on a $500,000 gain, it adds $19,000 to your tax bill.

What New 2026 Tax Rules Impact Selling Rental Property?

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, significantly impacts real estate investors planning property sales in 2026. The legislation extends bonus depreciation through 2026 and introduces new Section 168(n) deductions for qualified production property. These changes affect both passive real estate investments and active property management strategies.

One major OBBBA provision allows farmers and certain real estate investors to spread capital gains tax on farmland sales over four years. While this primarily applies to agricultural property, other real estate investors should monitor future IRS guidance for potential extensions. Additionally, the OBBBA limits operating losses to offset only 80% of taxable income in 2026, affecting investors with significant deductions.

OBBBA Provisions Affecting 2026 Rental Property Sales

• Bonus depreciation remains at 100% for qualified property purchased in 2025-2026
• New Section 168(n): 100% deduction for qualified production property used in manufacturing
• Four-year installment option for capital gains on qualified farmland sales
• Operating loss limitation: Losses can only offset 80% of taxable income in 2026

Planning Implications for 2026

Real estate investors should consider the timing of property purchases and sales in relation to the OBBBA changes. If you’re planning to sell a rental property in 2026, coordinate the sale with any new property acquisitions to maximize depreciation benefits. The operating loss limitation means large deductions might not provide immediate tax relief if taken entirely in one year.

How Can You Reduce Taxes When Selling Rental Property?

Several legitimate strategies can reduce your total tax bill when selling rental property in 2026. The key is planning before you sign a purchase agreement with a buyer. Many investors miss tax reduction opportunities by waiting until after the sale to consult with their tax advisor.

First, maximize your adjusted basis by ensuring all improvement costs are properly capitalized. Distinguishing between repairs (immediately deductible) and improvements (capitalized and depreciated) can significantly affect your gain calculation. A $30,000 improvement adds $30,000 to your basis, reducing your taxable gain by the same amount.

1031 Exchanges: Deferring Tax on Rental Property Sales

A 1031 exchange allows you to defer capital gains tax by reinvesting the proceeds into another like-kind property. For real estate, you can exchange any rental property for any other rental property and defer all capital gains tax. The trade-off is that you must identify a replacement property within 45 days and close within 180 days.

While a 1031 exchange doesn’t eliminate tax permanently, it defers it indefinitely if you continue exchanging. This strategy is particularly valuable for investors looking to consolidate properties or move into higher-income properties without immediate tax consequences.

Income Timing and Tax Bracket Management

Strategic timing of your rental property sale relative to other income can lower your capital gains tax rate. If selling in late 2026 would push you into the 20% long-term capital gains bracket, deferring the sale to early 2027 might keep you in the 15% bracket. Conversely, if other income will be lower in 2026, accelerating the sale makes sense.

• Defer business income to future years if possible
• Accelerate deductible expenses to reduce taxable income
• Consider Roth conversions in lower income years
• Bundle charitable donations to itemize in high-gain years

 

Uncle Kam in Action: Lincoln Rental Property Success Story

Marcus, a Lincoln-based real estate investor, owned three residential rental properties generating $45,000 in annual net rental income. He purchased the first property in 2008 for $150,000 and had depreciated it by $95,000. When a developer offered $420,000 for the property in 2026, Marcus almost accepted without tax planning.

After meeting with Uncle Kam’s tax team, Marcus discovered his planned gain would trigger: (1) $175,000 in long-term capital gains taxed at 15% ($26,250), (2) $95,000 in depreciation recapture at 25% ($23,750), and (3) $270,000 in net investment income tax threshold excess, triggering NIIT on $20,000 of his gain at 3.8% ($760), plus state income tax. His total federal tax would exceed $50,000.

Uncle Kam recommended a 1031 exchange into two newer properties generating higher rental income. This deferred all federal capital gains tax while maintaining Marcus’s real estate portfolio. By completing the exchange properly within the 45/180 day windows, Marcus kept the full $420,000 working in new investments generating increased cash flow.

Results: Federal tax deferred indefinitely | State tax minimized through strategic structuring | Rental income increased from $45,000 to $62,000 annually | Client saved over $50,000 in immediate taxes and generated $200,000+ in additional mortgage deductions through the 1031 exchange.

View more client results and learn how strategic tax planning transformed real estate portfolios throughout the Midwest.

Next Steps

1. Gather all purchase documents, improvement receipts, and depreciation records for your rental property.
2. Calculate your adjusted basis and estimated gain before listing the property.
3. Meet with a tax advisor to model different sale scenarios and tax bracket impacts.
4. Explore 1031 exchange alternatives if reinvestment aligns with your goals.
5. Contact Uncle Kam for comprehensive tax planning before accepting any offer on your property.

Frequently Asked Questions

What is my adjusted basis for capital gains calculation?

Your adjusted basis is your original purchase price plus the cost of capital improvements minus all depreciation deductions claimed during ownership. For example, if you paid $250,000, added $40,000 in improvements, and claimed $100,000 in depreciation, your adjusted basis is $190,000 ($250,000 + $40,000 – $100,000). Subtract this from your sale price to calculate your taxable gain.

Can I avoid depreciation recapture tax?

Depreciation recapture cannot be avoided when you sell a rental property. However, you can defer it through a 1031 exchange. The recapture tax obligation carries forward to your replacement property. You can also partially avoid recapture by not claiming depreciation in earlier years, but this usually doesn’t make economic sense since the deduction saves you money each year.

How does the 1031 exchange work?

A 1031 exchange defers capital gains tax by reinvesting your sale proceeds into another like-kind property. You must identify a replacement property within 45 days of closing and complete the purchase within 180 days. The proceeds must be held by a qualified intermediary—you cannot touch the money directly. Unlike simple property trades, the replacement property must be equal or greater in value to defer all taxes.

What income level triggers NIIT on my sale?

For 2026, the net investment income tax threshold is $200,000 for single filers and $250,000 for married couples filing jointly. If your modified adjusted gross income exceeds these amounts, 3.8% NIIT applies to your net investment income or the excess over the threshold—whichever is lower. High-income earners with significant rental property gains often exceed these thresholds.

Can I use capital losses to offset rental property gains?

Yes, capital losses can offset capital gains. However, net capital losses are limited to $3,000 per year for individuals, with excess losses carried forward indefinitely. If you have suspended passive activity losses from other rental properties, you may be able to deduct them against your sale gain, reducing your total tax liability.

What’s the difference between Section 1231 gains and capital gains?

Section 1231 property includes rental real estate held for business or investment purposes. Gains on Section 1231 property that’s held more than one year are treated as long-term capital gains. The key distinction is that depreciation recapture on Section 1231 property is separately taxed at 25%, while the remaining gain qualifies for favorable long-term capital gains rates.

How do state taxes affect my rental property sale?

State income taxes add to your federal tax burden on rental property sales. Nebraska does not have local income tax, but state income tax rates apply to capital gains. Your total effective tax rate on a rental property sale often exceeds 25-30% when combining federal tax, depreciation recapture, NIIT, and state income tax.

Should I hire a tax advisor before selling my rental property?

Absolutely. Professional tax planning before a rental property sale typically saves far more than the planning fee costs. An experienced real estate investment tax advisor can identify deduction opportunities, optimize timing, explore 1031 exchanges, and structure the transaction to minimize total taxes.

Related Resources

• Real Estate Investor Tax Strategies
• Entity Structuring for Real Estate Investment
• Comprehensive Tax Planning Strategy
• 2026 Tax Guides and Resources
• Advanced Tax Strategies for High-Net-Worth Individuals

Last updated: February, 2026

This information is current as of 2/9/2026. Tax laws change frequently. Verify updates with the IRS or a qualified tax professional if reading this later.