There are three steps involved in determining the capital gain taxes that are owed. The first is to determine the net adjusted basis – this is calculated by starting with the original purchase price, adding the capital improvements and subtracting the depreciation taken. The second step is calculating the actual capital gain by taking today’s sales price, subtracting the net adjusted basis and then subtracting the cost of sale to arrive at the capital gain. The third and final step is determining the capital gain owed. Under this formula, the recaptured depreciation is all taxed at 25% and the remaining economic gain is taxed at the maximum capital gain tax rate which is currently 15%. Finally, the state tax rate, when applicable, is also applied to the capital gain.  All three of these amounts, the depreciation recapture, the federal amount and the state tax, are added to arrive at the total capital gain tax due. Use our, Capital Gain Tax Calculator.