Taxes
Depreciation Recapture Calculator
Estimate depreciation recapture tax when you sell a rental property.
Calculation breakdown
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How rental property returns work
When you own a rental property, the IRS lets you deduct depreciation each year to offset rental income. It is one of the most valuable tax benefits of real estate investing — a non-cash deduction that lowers your tax bill without costing you a dollar out of pocket. But when you sell the property, the IRS wants some of that benefit back. That is depreciation recapture, and it can be a significant tax bill if you are not prepared. The recapture rule for real property (Section 1250) works like this: when you sell, the amount of depreciation you took over the years is taxed at a special rate — up to 25% federally — rather than the lower long-term capital gains rate that applies to the rest of your profit. The recapture amount is the smaller of your total depreciation taken or your total gain on the sale. If your gain is less than the depreciation you claimed, only the gain is recaptured. If your gain exceeds the depreciation, the full depreciation amount is recaptured and the remaining gain is taxed at the capital gains rate. For example, if you took $40,000 in depreciation over the years and your gain on the sale is $60,000, the full $40,000 is recaptured at up to 25%, and the remaining $20,000 is taxed at the long-term capital gains rate. If your gain were only $30,000, then $30,000 would be recaptured and there would be no additional capital gains tax on that portion. The calculator shows the recapture amount, the recapture tax at your entered rate, and a note that any gain above the recapture amount is taxed at capital gains rates. The rate you enter should reflect your situation — 25% is the federal maximum for unrecaptured Section 1250 gains, but your effective rate may be lower depending on your income bracket. State taxes may also apply on top of the federal recapture. Planning for recapture before you sell is essential. Strategies like a 1031 exchange can defer the recapture tax entirely, while living in the property to qualify for the primary-residence exclusion can reduce the capital gains portion (though not the recapture). Use this calculator to estimate the bill so there are no surprises at closing.
Worked example
You have taken $45,000 in depreciation on a rental property over the years. You sell the property and your total gain on the sale is $80,000. The unrecaptured Section 1250 rate is 25%.
Recapture amount = min($45,000, $80,000) = $45,000. Recapture tax = $45,000 × 25% = $11,250.
The remaining gain of $80,000 − $45,000 = $35,000 is taxed at the long-term capital gains rate, not the recapture rate. If your capital gains rate is 15%, that adds $35,000 × 15% = $5,250, bringing your total federal tax to $11,250 + $5,250 = $16,500. Use the Capital Gains Tax Calculator to estimate the full tax picture including the remaining gain.
Frequently asked questions
What is depreciation recapture?
Depreciation recapture is the tax the IRS collects when you sell a rental property, on the depreciation you deducted over the years. For real property (Section 1250), the recaptured amount is taxed at a maximum federal rate of 25%, rather than the lower long-term capital gains rate that applies to the rest of your profit.
How is the recapture amount calculated?
The recapture amount is the smaller of your total depreciation taken or your total gain on the sale. If your gain exceeds your depreciation, the full depreciation is recaptured. If your gain is less than your depreciation, only the gain is recaptured and there is no additional recapture.
What is the unrecaptured Section 1250 rate?
The maximum federal rate for unrecaptured Section 1250 gains is 25%. However, your effective rate may be lower depending on your income bracket — the 25% is a cap, not a flat rate for everyone. The calculator lets you enter the rate that applies to your situation. State taxes may also apply on top of the federal recapture.
How is the remaining gain taxed?
Any gain above the recapture amount is taxed at the long-term capital gains rate (typically 0%, 15%, or 20% federally, depending on your income). The calculator shows the recapture tax and notes that the remaining gain is taxed at capital gains rates. Use the Capital Gains Tax Calculator for the full picture.
Can I avoid depreciation recapture?
A 1031 exchange can defer both the recapture tax and the capital gains tax by reinvesting the proceeds into another investment property. The tax is not eliminated — it carries over to the new property — but you postpone paying it. Other strategies, like living in the property to qualify for the primary-residence exclusion, reduce the capital gains portion but not the recapture.
More Taxes tools
- 1031 Exchange Calculator Estimate the tax you can defer by reinvesting sale proceeds into a like-kind property.
- Capital Gains Tax Calculator Estimate capital gains tax, recapture, and net proceeds when you sell a property.
- Rental Property Depreciation Calculator Calculate annual and first-year depreciation with the mid-month convention.