Your gain, by layer
What each dollar of gain is taxed as.
Commercial Property Capital Gains Tax Calculator
Selling an office, retail, industrial or mixed-use building? Enter the price, what you paid and the depreciation you took. You will see the tax on the sale layer by layer: cost segregation recapture, the 25% layer, the long-term gain, the 3.8% tax and your state, with suspended passive losses applied. Then the same sale spread over the years you are paid, and how much more you keep. Everything runs in your browser.
Your numbers
All in one year
A cash sale: everything taxed in the year of sale.
Spread over the payment years
Seller financing: gain taxed as principal arrives (IRC 453).
This is an estimate. Getting it right down to the tee takes your actual tax forms (returns, K-1s, depreciation schedules), a consult and a paid analysis. The first 15-minute scope call is free.
Get the REAL numbers
Hans Goldstein, EAAdmitted to practice before the IRS
These are estimates. Have a qualified tax professional run your real numbers in a 15-minute scope call.
Book my 15-minute callThis is an estimate. Getting it right down to the tee takes your actual tax forms (returns, K-1s, depreciation schedules), a consult and a paid analysis. The first 15-minute scope call is free.
Year by year: principal, gain, passive losses and tax
How the sale of commercial property is taxed
A commercial building is taxed differently from a home or raw land because of depreciation. Every dollar you deducted lowered your basis, and on the sale it comes back in a specific order (IRS Publication 544).
1. Adjusted basis and gain
Adjusted basis is what you paid plus capital improvements, minus all depreciation taken: straight-line building depreciation and any cost segregation or bonus depreciation. Gain is the sale price, minus selling costs, minus adjusted basis. In the example, $3,000,000 plus $400,000 of improvements, minus $1,500,000 of depreciation, leaves a $1,900,000 basis; a $7,500,000 sale with $375,000 of costs is a $5,225,000 gain.
2. Cost segregation recapture: ordinary income, year one
A cost segregation study moves parts of a building (carpet, specialty electrical, parking lots, landscaping) to 5, 7 or 15-year lives. Those parts are Section 1245 property, so every dollar of their depreciation is recaptured as ordinary income, up to the gain (IRC 1245). On an installment sale it is still taxed in the year of sale (IRC 453(i)).
3. The 25% layer: unrecaptured Section 1250 gain
Commercial buildings are depreciated straight line over 39 years (IRC 168(c)). That depreciation is unrecaptured Section 1250 gain: taxed at your ordinary rate, capped at 25% (IRC 1(h)(1)(E), (h)(6)). On a note, it is reported out of the first payments (Treas. Reg. 1.453-12).
4. Long-term gain, the 3.8% tax and state
The rest is long-term capital gain at 0%, 15% or 20%. For 2026, married couples filing jointly reach 20% above $613,700 of taxable income (Rev. Proc. 2025-32). Rental property gain is also net investment income, taxed at 3.8% above $250,000 married or $200,000 single (IRC 1411). Your state adds its own tax; choose it above.
5. Suspended passive losses
Losses the passive activity rules held back on this building are released when you sell your entire interest to an unrelated buyer, and they offset the gain and other income (IRC 469(g)). Your Form 8582 worksheets show the carryforward.
A worked example (2026, computed by the calculator's engine)
A married couple in California bought a retail building for $3,000,000 (25% land) and spent $400,000 on improvements. Over 18 years they took $1,200,000 of straight-line depreciation and $300,000 of cost segregation depreciation, and $150,000 of passive losses are suspended. They sell for $7,500,000 with 5% selling costs; other income is $200,000.
- The gain: $5,225,000: $300,000 of Section 1245 recapture, $1,200,000 at up to 25%, and $3,725,000 of long-term gain. The $150,000 of passive losses are used.
- All in one year: $1,101,263 federal income tax, $190,950 net investment income tax and $641,314 California tax: $1,933,527 in 2026.
- Spread over 10 years: they take $1,625,000 at closing and carry a $5,500,000 note at 6%. Year one tax is $699,504 (the recapture is in it), and the total is $1,639,772, including $22,882 of Section 453A interest because the note is $500,000 over the line.
- They keep $293,755 more by spreading. A $5,000,000 note would remove the 453A interest; see the 453A interest charge calculator.
What this calculator leaves out
One building held more than a year by an individual or a pass-through owner, level yearly payments, the 2026 tables carried forward for later years. It does not model a Section 1031 exchange (see the 1031 boot calculator), C corporation ownership, the alternative minimum tax, local transfer taxes, a mortgage paid off at closing (a year-one payment on a note), or partnership-level rules for multi-owner buildings.
Sources
- Rev. Proc. 2025-32: 2026 brackets and capital gain thresholds.
- IRC 1(h), IRC 1245, IRC 168: rates, recapture and the 39-year life.
- IRC 453 and IRS Publication 537: installment sales; IRC 453A: notes over $5,000,000.
- IRC 469(g) and IRC 1411: passive losses and the 3.8% tax (statutes as in force October 2026).
Questions about tax on a commercial property sale
How much is capital gains tax on the sale of commercial property?
It comes in four layers. Cost segregation depreciation (Section 1245 property) is recaptured as ordinary income at up to 37%. Straight-line building depreciation is unrecaptured Section 1250 gain, taxed at up to 25%. The rest is long-term gain at 0%, 15% or 20% (2026 brackets, Rev. Proc. 2025-32). Add the 3.8% net investment income tax and your state. A California couple selling a $7,500,000 building in the example on this page owes $1,933,527 in one year.
How is depreciation recapture taxed on commercial real estate?
Commercial buildings are depreciated straight line over 39 years (IRC 168(c)). On a sale, that depreciation is unrecaptured Section 1250 gain, taxed at your ordinary rate but not more than 25% (IRC 1(h)(6)). Components a cost segregation study moved to 5, 7 or 15-year lives are Section 1245 property, and all of that depreciation is ordinary income, up to the gain.
Can I spread the tax on a commercial property sale with an installment sale?
Yes, the gain can be reported as principal arrives (IRC 453), but two parts cannot wait: Section 1245 recapture is taxed in the year of sale even on a note (IRC 453(i)), and the 25% layer is reported out of the first payments (Treas. Reg. 1.453-12). Notes over $5,000,000 at year end also owe the Section 453A interest charge.
What happens to suspended passive losses when I sell a commercial building?
When you sell your entire interest in the activity to an unrelated buyer in a taxable sale, the losses Form 8582 held back are released and deduct against the gain and your other income (IRC 469(g)). On an installment sale they are released in proportion to the gain reported each year. Enter them in the calculator.
Does the 3.8% net investment income tax apply to a commercial property sale?
Usually yes for a rental building: gain on property held for rent is net investment income (IRC 1411). The threshold is $250,000 of modified adjusted gross income for married couples and $200,000 for single filers, and it is not indexed for inflation. A real estate professional who materially participates can be outside it.
Keep going
- Seller financing commercial real estate: structuring the note.
- 453A interest charge calculator: notes over $5,000,000.
- Real estate capital gains tax calculator: homes and rentals.
- Depreciation recapture on an installment sale.