Selling a home or investment property is about more than timing the market or choosing the right agent. Tax consequences, especially capital gains, can dramatically affect your net proceeds. As your Colorado real estate partner, Corken + Company sees many sellers who underestimate or mismanage the tax side of the equation. This post walks you through how short-term and long-term capital gains work in 2025, key rules for primary residences and investment properties, and strategies to reduce your tax burden.
Why Capital Gains Matter in Real Estate
When you sell a real property asset, whether your home, a second home, or an investment property, the gain is the difference between your sale proceeds and your cost basis. That gain is generally taxable, unless an exclusion, deferral, or other rule applies.
Because real estate often involves large sums and accumulates appreciation over many years, the tax on gains can be one of the biggest line items in your closing costs. Understanding whether your gain is taxed as short-term or long-term, what rates apply, and what exceptions may reduce your liability is critical for planning.
Short-Term vs. Long-Term Capital Gains
The IRS divides capital gains into two categories:
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Short-term capital gains: gains on property held one year or less
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Long-term capital gains: gains on property held more than one year
Short-term gains are taxed as ordinary income, subject to your standard income tax bracket, which ranges from 10% to 37% in 2025. Long-term gains are taxed at 0%, 15%, or 20% depending on your income.
For 2025, the thresholds for long-term capital gains are:
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0% rate: Single filers up to $48,350; Married filing jointly up to $96,700
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15% rate: Single filers $48,351 to $533,400; Married filing jointly $96,701 to $600,050
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20% rate: Above those thresholds
Some high-income taxpayers may also face an additional 3.8% Net Investment Income Tax, pushing the effective rate to 23.8%.
Calculating Your Capital Gain
To determine your taxable gain on a real estate sale:
Sale Proceeds
– Selling Costs (commissions, closing costs)
– Adjusted Basis (original cost plus capital improvements, minus depreciation)
= Realized Gain
For investment properties, depreciation recapture applies. The IRS taxes the portion of gain attributable to depreciation at ordinary income rates, up to 25%.
Special Rules for Primary Residences
If you've owned and lived in your home for at least two of the past five years, you may exclude up to:
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$250,000 of gain (single)
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$500,000 of gain (married filing jointly)
This exclusion is limited to one sale every two years and applies only to primary residences. If part of the home was used for rental or business, some of the gain may be ineligible.
Key Considerations for Colorado Sellers
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Colorado treats capital gains as ordinary income for state tax purposes
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State income tax rate in 2025 is a flat rate applied to all taxable income
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Counties and municipalities may impose transfer taxes or additional closing costs
Strategies to Reduce or Defer Capital Gains Taxes
Hold for the Long Term
Wait at least one year to access lower long-term rates.
Use the Primary Residence Exclusion
Ensure you meet ownership and residency requirements before selling.
1031 Like-Kind Exchange
Defer taxes by reinvesting proceeds from an investment property sale into another qualifying property.
Offset Gains with Losses
Use capital losses from other investments to reduce taxable gains.
Time Your Sale in a Lower-Income Year
Sell during a year with lower income to potentially qualify for a lower tax bracket.
Make Capital Improvements
Increase your basis by improving the property before selling.
Installment Sales
Spread out gain recognition over several years by financing the buyer.
Colorado Examples
Homeowner in Denver
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Bought for $400,000 in 2015
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Sold for $800,000 in 2025
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$50,000 in capital improvements; $30,000 in selling costs
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Adjusted basis = $450,000; Net proceeds = $770,000; Gain = $320,000
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Gain excluded under the $500,000 rule (if married filing jointly)
Rental Property in Colorado Springs
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Bought for $250,000 in 2018
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Sold for $400,000 in 2025
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$20,000 in improvements; $30,000 depreciation; $25,000 selling costs
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Adjusted basis = $240,000; Net proceeds = $375,000; Gain = $135,000
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$30,000 taxed as depreciation recapture; $105,000 taxed at capital gains rate
2025 Capital Gains Reference
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0% Rate Threshold (Single): $48,350
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0% Rate Threshold (Married Filing Jointly): $96,700
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15% Rate Range (Single): $48,351 to $533,400
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15% Rate Range (Married Filing Jointly): $96,701 to $600,050
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Home Sale Exclusion (Single): $250,000
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Home Sale Exclusion (Married): $500,000
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Depreciation Recapture Rate: Up to 25%
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Net Investment Income Tax: 3.8% for high-income earners
Real estate transactions often involve more than just pricing and negotiation. Planning around capital gains taxes can significantly affect your financial outcome. For insights tailored to your goals and Colorado properties, connect with the experienced team at Corken + Company.
Visit www.corken.co or call 303-858-8003 to start a conversation about your next move.
