CALC_MARKER
Selling a home or an investment property triggers different tax math depending on whether you lived in it, how much depreciation you've claimed, and what your other income looks like. This estimator walks through federal capital gains, Kentucky's flat state tax, depreciation recapture, and — if you're selling an investment property — what a 1031 exchange would do instead.
What's actually being calculated
Your gain
Gain = sale price minus selling costs (commission, closing costs) minus your adjusted basis (what you paid, plus capital improvements, minus any depreciation you've claimed on an investment property).
If it's your primary residence
Section 121 of the tax code lets you exclude up to $250,000 of gain (single) or $500,000 (married filing jointly) if you owned and lived in the home for at least 2 of the last 5 years. Only the gain above that exclusion gets taxed.
If it's an investment property
No exclusion applies. Any depreciation you've claimed gets "recaptured" — taxed separately at up to 25% — before the remaining gain is taxed at long-term capital gains rates. 2026 federal long-term capital gains brackets: 0% up to $49,450 single / $98,900 married filing jointly, 15% up to $545,500 single / $613,700 married filing jointly, 20% above that — and your gain stacks on top of your other income to determine which bracket it lands in. High earners (over $200,000 single / $250,000 married filing jointly modified AGI) also owe the 3.8% Net Investment Income Tax on top. Kentucky doesn't have a separate capital gains rate — gains are taxed as ordinary income at Kentucky's flat 3.5% rate.
The 1031 exchange alternative
If you're selling an investment or business-use property (not a primary residence), a 1031 exchange lets you defer all of this tax by rolling the full proceeds into a "like-kind" replacement property. The rules are strict: you have 45 days from closing to identify replacement properties and 180 days total to close on one, the replacement property must be equal or greater value with equal or greater debt (or you make up the difference in cash), and the exchange has to run through a qualified intermediary — you can never touch the sale proceeds directly. Done correctly, no tax is due now; your old basis and deferred gain roll into the new property.
What this doesn't cover
This is a simplified estimate, not a tax return. It doesn't account for passive activity loss carryforwards, opportunity zone rules, installment sales, partial 1031 exchanges with boot, or your specific filing situation. Depreciation recapture is shown at the maximum 25% rate — if your ordinary income tax bracket is lower than 25%, your actual recapture rate is capped at your bracket instead. Talk to a CPA before you sell.
Frequently asked questions
Can I use the Section 121 exclusion on a property I used to rent out?
Only for the portion of ownership when it was your primary residence, and only if you meet the 2-of-5-year test — a "non-qualified use" calculation reduces your exclusion for years it was a rental. This gets complicated fast; a CPA should run the exact numbers.
Does a 1031 exchange work on a house I plan to flip?
No — 1031 exchanges require the property to be held for investment or business use, not primarily for resale. A quick flip generally doesn't qualify and the gain is typically taxed as ordinary income anyway, not even at capital gains rates.
What counts as a capital improvement that raises my basis?
Things that add value or extend the property's life — a new roof, an addition, a renovated kitchen — count. Routine repairs and maintenance, like patching drywall or repainting, don't.
Next steps with Winner Realty
Whether you're weighing a straight sale against a 1031 exchange, this is the kind of number to run before you list, not after you're under contract. Licensed in Kentucky and Indiana. Every listing goes live on MLS within 3 business days of signing.