First, here's how to calculate your gain or loss on the sale of your investment property....

Selling Price - Purchase Price - Purchase Costs - Improvements - Selling Costs + Depreciation

You may have heard of short-term and long-term capital gains --- the difference is in the timing....

If you sell an investment property within one year (including one year exactly) of purchasing it, your "short-term capital gain" will be taxed at the same level at which your ordinary income is taxed.  This could be at a rate as high as 35%, but depends on your income level.

If you sell an investment property after one year of owning it, your "long-term capital gain" will be taxed at either 0% or 15%.  If you (as an investor) are in the 10% or 15% income tax bracket, you will pay 0% (yes, that's right, no taxes) on your long-term capital gains.  If your income tax bracket is above 15%, you will still only pay 15% tax on your long-term capital gain.  This is important to note, as an investor might pay a 25% tax on their ordinary income, but can pay significantly less (only 15%) on their income (long-term capital gains) on investment properties in that year.

Of note, these tax rates (0%, 15%) only last through the end of 2010 given current legislation on the books.  If they aren't extended, they will revert back to the previous tax rates of 10% and 20%.