How to use this calculator
Most keep-or-sell advice compares two numbers: what the property is worth and what you paid. That misses most of the decision. Selling a rental you have owned for years triggers three or four separate taxes. Keeping it means more years of tenants, repairs and appreciation you can only guess at. And there are more than two choices. You can exchange into another property, buy a passive interest in a larger one, carry a note for the buyer, or keep the property so your heirs inherit it with the gain wiped out.
This calculator puts all six of those options on one scale: how much after-tax wealth you would have at the end of the period you choose. For the options that sell at some point, that means the proceeds after selling costs, loan payoff and every tax, plus the after-tax cash flow you received along the way, reinvested at the return you enter. For “hold for heirs” it is what passes to your heirs instead.
Start with the seven fields in “Your property”. The calculator fills in the rest with defaults: 20 percent of the price as land, 40 percent of rent for operating expenses, 3 percent appreciation, 6 percent selling costs, a 5 percent return on invested cash and a 10-year comparison. Then open “Refine your assumptions” and replace the defaults that matter most for you. Your actual depreciation figure from Form 4562 and your state tax rate usually move the result more than anything else.
The six options, explained
1. Keep it, then sell later
You keep collecting rent, paying down the mortgage and taking depreciation, then sell at the end of the period. Every year the calculator works out net operating income, subtracts debt service, taxes the profit after interest and depreciation, and reinvests what is left. Losses are carried forward as suspended passive losses and released when you sell, as the passive activity rules require. Turn on the property manager option to see what keeping would look like if you stopped doing the work yourself. For many tired landlords that is the real alternative to selling.
2. Sell now and invest the proceeds
You pay the tax today and invest what is left. This is the simplest option and the one most people compare everything else against. Its weakness is that the tax bill comes out of your capital at the start, so a smaller amount compounds for the whole period. Its strength is that it ends your involvement and your concentration in one property on day one.
3. 1031 exchange into another rental
Section 1031 lets you defer the entire gain, including recapture, by selling through a qualified intermediary and buying replacement real estate. By default the calculator assumes an equal trade, a replacement worth the net sale price, so no taxable “boot” arises. You can enter a loan-to-value to buy a larger property instead. The deferred gain carries over, so your old depreciation is still waiting at the end, along with the depreciation you take on the new property. The calculator includes all of it in the tax on the final sale. The exchange has hard deadlines: 45 days to identify replacement properties and 180 days to close, counted from the sale. Our 1031 exchange calculator checks whether a specific replacement fully qualifies.
4. 1031 exchange into a Delaware Statutory Trust (DST)
A DST is a way to complete a 1031 exchange without becoming a landlord again. You buy a fractional interest in a large, professionally managed property and receive distributions. The trade-off is cost and control. Sponsors charge loads and fees that often total 5 to 12 percent of the money invested, you cannot sell early, and the sponsor decides when the property is sold. The calculator takes the load off the top, taxes the part of each distribution that depreciation does not shelter, and taxes the final sale including the gain you deferred. DST interests are securities sold almost entirely to accredited investors, so the option is unavailable if you untick that box.
5. Sell with seller financing
Instead of receiving all the cash at closing, you take a down payment and a promissory note, and the buyer pays you principal and interest every month. Under the installment method in Section 453, you pay tax on the gain as principal arrives, not all at once. A set share of every principal dollar, the gross profit ratio, is gain, and the recapture portion is taxed first. Interest is ordinary income. Most notes end with a balloon payment after a set number of years, and the calculator lets you allow for part of that balloon never being paid. It also assumes your own mortgage is paid off at closing, because leaving it in place behind a note can trigger the lender’s due-on-sale clause.
6. Hold for your heirs
When you die, the cost basis of the property resets to its market value under Section 1014. If your heirs sell soon afterwards, there is little or no gain, and the depreciation recapture you would have owed disappears with it. The calculator runs the same year-by-year model as “keep” and then shows what passes to your heirs at the end of the period, net of the mortgage and the heirs’ selling costs, plus the cash flow you received. Estate tax only applies to estates above the federal exemption, so it is not included. If you own the property jointly with a spouse in a common-law state, only the deceased spouse’s half is stepped up. Choose that option under “Hold for heirs”.
The taxes you pay when you sell a rental
The tax on a rental sale is several taxes stacked on top of each other, and the order matters. The calculator follows the same order as the IRS Schedule D tax worksheet.
- Depreciation recapture.The part of your gain equal to the depreciation you took (technically “unrecaptured Section 1250 gain”) is taxed at up to 25 percent. Only the slice that falls under the 0 percent capital gains threshold is taxed at your lower ordinary rate.
- Long-term capital gains. The rest of the gain is taxed at 0, 15 or 20 percent, depending on where it lands on top of your other income. For 2026, married couples filing jointly reach 15 percent above $98,900 of taxable income and 20 percent above $613,700.
- Net investment income tax. An extra 3.8 percent applies to the smaller of your investment income and the amount your modified adjusted gross income exceeds $250,000 (married filing jointly) or $200,000 (single). A large sale can push you over the threshold even if you are normally well under it. Real estate professionals are exempt on rental income and gains.
- State income tax. Most states tax the whole gain as ordinary income. A few have no income tax. The calculator uses one flat rate you can edit.
The calculator shows the incremental tax: the tax with the sale minus the tax without it, given your other income. That is the number that matters for the decision, and it is why it asks for your other taxable income and filing status.
Why your depreciation figure matters so much
Recapture applies to depreciation that was “allowed or allowable”, so you owe it even if you never claimed the deduction. If you leave the depreciation field blank, the calculator estimates it from the building share of your purchase price and the years you have owned it, using the 27.5-year straight-line schedule for residential rentals. If you have your returns, use the real figure. If you missed depreciation in past years, ask a CPA about recovering it with Form 3115 before you sell. You will be taxed on it either way, so you may as well get the deduction.
Selling a former home: the three-year window
If the rental used to be your main home, the Section 121 exclusion may let you exclude up to $250,000 of gain ($500,000 for married couples filing jointly). You need to have owned the home and lived in it for at least two of the five years before the sale. In practice that gives you roughly three years after moving out. Two details catch people out:
- Depreciation you took while it was rented is never excluded. It is taxed as recapture even when the rest of the gain is tax-free.
- Rental time beforeyou moved in (after 2008) is “nonqualified use” and reduces the exclusion proportionally. Rental time after you moved out, within the five-year window, does not.
Turn on “This was my home” and enter the years you lived there. The calculator applies the exclusion to the sell-now option, shows the year your window closes, and warns you if keeping the property would let it lapse. For accidental landlords who kept a home because of a low mortgage rate, this deadline is often the most important number on the page.
A worked example
Click “Try an example” in the calculator to load this case. A married couple with $150,000 of other taxable income bought a rental in 2012 for $300,000. It is now worth $700,000, rents for $3,500 a month and has a $120,000 mortgage at 4.0%. They live in a state with a 5% income tax. Every other input is the default.
Selling today. After 6 percent selling costs they realize $658,000. Their adjusted basis is $177,818 after an estimated $122,182 of depreciation, so the gain is $480,182. The tax comes to about $124,749: $30,545 of recapture, $54,524 of capital gains tax, $15,671 of net investment income tax and $24,009 of state tax. After paying off the mortgage, they keep $413,251.
Over ten years. The options rank like this by after-tax wealth at the end of year 10:
- Hold for heirs (stepped-up basis): $986,690
- 1031 exchange into another rental: $850,473
- Keep 10 years, then sell: $762,906
- Sell with seller financing: $721,094
- Sell now and invest: $673,142
- 1031 into a DST (passive): $646,632
Holding for heirs ranks first because the step-up removes about $223,784 of tax that a sale in year 10 would trigger. That only helps if you are actually planning to leave the property to someone. Among the options that end with a sale, the 1031 exchange leads, because the full $538,000 of equity keeps working instead of losing $124,749 to tax up front. Selling now beats keeping only if the property appreciates by less than about 1.4%a year. Seller financing pays the highest yearly income, but the buyer’s $140,000 down payment does not cover the selling costs, mortgage payoff and first-year tax of $41,774, so the calculator flags that.
Change one assumption and the order can change. Lower the reinvestment return or raise appreciation and keeping looks better. Hire a property manager and keeping looks worse. Stretch the horizon to 20 years and the 1031 exchange overtakes the step-up in this example. The “What would change the answer” table at the bottom of your results runs these tests automatically.
How to read your results
- After-tax wealth is the main comparison. Differences under a few percent are inside the margin of error of your assumptions. Treat those options as a tie and decide on effort, risk and liquidity instead.
- Cash today shows what you walk away with at closing. It is negative when the cash at closing does not cover your costs, mortgage payoff and first-year tax.
- Average yearly income matters if you depend on the property for living costs. A DST or a seller-financed note can replace rental income without the landlord work.
- Effort is not in the dollar figures, but it is often what the decision turns on. An extra $30,000 over ten years may not be worth another decade of maintenance calls.
- Things to know before you decide lists deadlines, eligibility limits and legal risks that the numbers do not show, such as the 1031 timeline, accredited-investor rules or a due-on-sale clause.
Assumptions and limits
The calculator is a planning tool. It is designed to narrow six options down to one or two and to show you which assumptions drive the answer. It is not a tax return. In particular:
- It uses 2026 federal tax brackets for every future year and the standard deduction. Tax law and brackets will change.
- State tax is a single flat rate on rental income and gains. It does not model state-specific capital gains rules.
- It does not model the $25,000 passive loss allowance, the alternative minimum tax, cost segregation, opportunity zone funds, charitable trusts or estate tax.
- The 1031 and DST options assume the exchange fully qualifies and that any debt is replaced. The DST option assumes the sponsor sells at the end of the period.
- Seller financing assumes your mortgage is paid off at closing and that the home-sale exclusion is not combined with the installment method.
If two options are close, or you are leaning toward a 1031, DST or seller-financed sale, take your results to a CPA or tax adviser before you list. Bring the depreciation schedule from your returns, your closing statement from the purchase, receipts for capital improvements and any suspended passive losses from Form 8582. Copy the link at the top of your results to share the exact scenario with them.
Related tools and guides
- 1031 exchange calculator: test whether a specific replacement property fully qualifies.
- 1031 exchange guide: the rules, deadlines and common mistakes.
- Rental property tax strategy guide: depreciation, deductions and entity choices while you own.
- Tax strategy optimizer: estimate this year’s depreciation and deductions.
- Refinance calculator: an alternative to selling if you want to take equity out.