Depreciation Recapture Section 1250 Calculator 2026
Section 1250 recapture taxes depreciation taken on real estate at 25% federal rate when sold. Often surprises owners — they assume LTCG (15-20%). This tool computes recapture, remaining LTCG gain, and total tax on sale.
How Section 1250 Recapture Works
Real estate is Section 1250 property. Depreciation taken during ownership taxed at maximum 25% federal rate (lower of 25% or your ordinary marginal rate) on sale. Remainder of gain taxed at LTCG rates (0/15/20%). Recapture is calculated even if you didn't claim all available depreciation — 'depreciation allowed or allowable.'
Why 25% Surprises Most Sellers
Most assume entire gain is LTCG at 15-20%. Reality: portion equal to depreciation taken is recaptured at 25%. Example: $400K gain on rental with $125K depreciation = $125K @ 25% + $275K @ 20% = $31,250 + $55,000 = $86,250 federal tax. Add NIIT (3.8%) and state tax, total can exceed 35%.
How To Avoid Recapture Tax
Three paths: (1) Section 1031 exchange — defers BOTH recapture and LTCG indefinitely. (2) Hold until death — step-up in basis eliminates both. (3) Section 121 exclusion (primary residence) — eliminates LTCG but recapture still owed on rental period portion. Installment sale defers LTCG but NOT recapture — recapture due in year of sale.
Source: IRS Pub 544, IRS Section 1250, Section 1(h)(6). Last updated: May 2026.