Q. How do I compute taxes on sale of a rental property?
A. Sale price less cost basis (purchase price plus improvements) = your long term capital gain; which is taxed at long term capital gains rates of 0 to 23.8%, depending on your other income. On top of that depreciation recapture (section 1250 capital gain*) is taxed as ordinary income by not more than 25%.
*You were allowed to deduct depreciation against rental income while you were renting it out. When you sell it, you are required to report the depreciation allowed as a reduction in your cost basis. This results in additional capital gain. But, because you got a direct deduction, in the past, this part of your capital gain is taxed differently than the rest of the capital gain.
Reference: https://www.thebalance.com/depreciation-recapture-3192979
