Published 06/18/2026
Federal Tax and Financial Rates That Impact Real Estate Investing and 1031 Exchanges [As of June 2026]
Last updated June 18, 2026.
Understanding how federal tax law and the current financial environment work together is an important part of successful real estate investing. Tax rates influence everything from how much you owe when you sell a property to how financing costs affect cash flow and long-term returns. For investors considering a 1031 exchange, these rates become even more relevant, as timing, tax deferral, and reinvestment strategies are closely tied to federal rules.
States may impose additional rules and taxes that can affect real estate investing strategies, including state income taxes, state-level capital gains taxes, transfer taxes, property taxes, and potential clawback provisions. Because state treatment can vary widely, it’s important to consult a qualified tax advisor about how these rules may apply to your specific real estate transaction.
Below is a snapshot of key federal tax and financial rates for 2026 that commonly affect investors and property owners participating in real estate transactions and 1031 exchanges. While these tables provide a helpful reference point, the way these rates apply can vary depending on your specific situation.
Capital Gains Tax Rates for 2026
Capital gains taxes apply when you sell a property for more than its adjusted cost basis. For real estate investors, the distinction between short-term capital gains and long-term capital gains is especially important. Properties held for more than one year generally qualify for long-term capital gains treatment, which is taxed at lower rates than ordinary income.
One of the primary benefits of a 1031 exchange is the ability to defer capital gains taxes by reinvesting proceeds into like-kind property. While a 1031 exchange does not eliminate the tax, understanding the applicable rates helps investors quantify the value of deferral.
Long-Term Capital Gains Tax Rates for 2026 (Based on Total Taxable Income)
Filing Status | 0% Rate | 15% Rate | 20% Rate |
Single | Up to $49,450 | $49,451 – $545,500 | Over $545,500 |
Married Filing Jointly | Up to $98,900 | $98,901 – $613,700 | Over $613,700 |
Married Filing Separately | Up to $49,450 | $49,451 – $306,850 | Over $306,850 |
Head of Household | Up to $66,200 | $66,201 – $579,600 | Over $579,600 |
Short-Term Capital Gains
Short-term capital gains (on assets held one year or less) are taxed at ordinary federal income tax rates, included below.
Net Investment Income Tax (NIIT)
The Net Investment Income Tax (NIIT) is an additional federal tax that can apply to real estate investors with higher income levels. It is assessed at a flat 3.8% on certain investment income, including rental income and capital gains from real estate sales.
For investors, properly structured 1031 exchanges may also defer NIIT along with capital gains tax. However, if a transaction does not qualify for full deferral, NIIT may apply.
Net Investment Income Tax Rate
Tax | Rate |
Net Investment Income Tax (NIIT) | 3.8% |
NIIT Income Thresholds
Filing Status | Modified Adjusted Gross Income Threshold |
Single | $200,000 |
Married Filing Jointly | $250,000 |
Married Filing Separately | $125,000 |
Head of Household | $200,000 |
Depreciation Recapture Tax Rates
Depreciation allows real estate investors to reduce taxable income over time, but when a depreciated property is sold, a portion of the gain may be subject to depreciation recapture. This recaptured amount is taxed differently from capital gains.
In a properly executed 1031 exchange, depreciation recapture taxes may also be deferred, making this rate particularly important for long-term investors evaluating exchange strategies.
Depreciation Recapture Rates
Type of Asset | Maximum Federal Rate |
Real estate depreciation recapture (Section 1250) | Ordinary income tax rates, capped at 25% |
Personal property depreciation (Section 1245) | Ordinary income tax rates |
Federal Income Tax Rates for 2026
Federal income tax brackets affect real estate investors in several ways. Rental income, short-term capital gains, depreciation recapture, and certain exchange-related income are all tied to ordinary income tax rates.
While long-term capital gains are taxed separately, these brackets still matter when evaluating overall tax liability and planning investment strategies.
Federal Income Tax Brackets for 2026
Single Filers
Tax Rate | Income Range |
10% | Up to $12,400 |
12% | $12,400 – $50,400 |
22% | $50,400 – $105,700 |
24% | $105,700 – $201,775 |
32% | $201,775 – $256,226 |
35% | $256,226 – $640, 600 |
37% | Over $640,600 |
Married Filing Jointly
Tax Rate | Income Range |
10% | Up to $24,800 |
12% | $24,800 – $100,800 |
22% | $100,800 – $211,400 |
24% | $211,400 – $403,550 |
32% | $403,550 – $512,450 |
35% | $512,450 – $768,700 |
37% | Over $768,700 |
Married Filing Separately
Tax Rate | Income Range |
10% | Up to $12,400 |
12% | $12,400 – $50,400 |
22% | $50,400 – $105,700 |
24% | $105,700 – $201,775 |
32% | $201,775 – $256,225 |
35% | $256,225 – $384,350 |
37% | Over $384,350 |
Head of Household
Tax Rate | Income Range |
10% | Up to $17,700 |
12% | $17,700 – $67,450 |
22% | $67,450 – $105,700 |
24% | $105,700 – $201,750 |
32% | $201,750 – $256,200 |
35% | $256,200 – $640,600 |
37% | Over $640,600 |
Federal Funds Rate Target Range
The Federal Funds Rate is set by the Federal Reserve and influences borrowing costs across the economy. While real estate investors do not borrow at the federal funds rate directly, it plays a major role in determining mortgage rates, commercial lending rates, and overall financing conditions. Changes in this rate can affect:
Mortgage affordability
Cash flow projections
Refinance and acquisition timing
1031 exchange replacement property strategies
Federal Funds Rate Target Range as of June 2026
Rate Type | Target Range |
Federal Funds Rate | 3.50% – 3.75% |
Consider Federal Rates When Planning Your Next Move
Federal tax and financial rates play a meaningful role in real estate investment outcomes, from initial acquisition and financing to eventual sale or exchange. While these tables provide helpful benchmarks, the real impact of these rates depends on how they intersect with your overall investment strategy, holding period, and transaction structure.
If you have questions about how these federal rates may affect your real estate transaction, investment strategy, or potential 1031 exchange, we’re here to help. Contact First American Exchange Company to discuss your situation and explore strategies aligned with your goals.