Depreciation Recapture Calculator 2026
Calculate the depreciation recapture tax owed when selling rental or investment property. This calculator estimates the Section 1250 unrecaptured gain taxed at 25% and the remaining capital gains tax. Enter your original cost basis, accumulated depreciation, and sale price. Based on IRS Section 1250 rules. Free, private, runs in your browser.
What Is Depreciation Recapture?
Depreciation recapture is a tax provision that requires you to pay tax on the depreciation deductions you claimed (or should have claimed) on rental or investment property when you sell it. Under IRS Section 1250, the portion of your gain attributable to accumulated depreciation is taxed at a maximum rate of 25% — higher than the standard long-term capital gains rate of 15-20% for most taxpayers. This applies to residential rental property depreciated over 27.5 years and commercial property depreciated over 39 years using the straight-line method. Even if you did not claim depreciation, the IRS taxes you as if you did — this is the "allowed or allowable" rule under IRS Publication 544. Last updated May 2026.
How Depreciation Recapture Tax Is Calculated
The total gain on sale is split into two components: (1) Depreciation recapture — the lesser of your total accumulated depreciation or the total gain, taxed at a flat 25%. (2) Capital gain — the remaining gain above the recapture amount, taxed at the long-term capital gains rate (0%, 15%, or 20% depending on your income bracket). Additionally, high-income taxpayers may owe the 3.8% Net Investment Income Tax (NIIT) on the entire gain if their MAGI exceeds $200,000 (single) or $250,000 (MFJ). For example: if you bought a rental for $300,000, claimed $100,000 in depreciation (adjusted basis now $200,000), and sell for $450,000, your total gain is $250,000. The first $100,000 is recapture taxed at 25% ($25,000). The remaining $150,000 is capital gains. Source: IRS Form 4797.
Avoiding Depreciation Recapture with a 1031 Exchange
The most common strategy to defer depreciation recapture is a Section 1031 like-kind exchange. By reinvesting the sale proceeds into another qualifying investment property within strict timeframes (45 days to identify, 180 days to close), you defer both the depreciation recapture tax and the capital gains tax indefinitely. The deferred depreciation carries over to the replacement property's basis. A "swap until you drop" strategy chains 1031 exchanges throughout your lifetime, and your heirs receive a stepped-up basis at death — eliminating the recapture tax entirely. Source: IRS Publication 544.
Depreciation Recapture vs Capital Gains: Key Differences
While both are triggered by selling property at a gain, they are taxed differently. Depreciation recapture is taxed at a flat 25% regardless of your income bracket — there is no 0% or 15% rate for recapture. Capital gains rates depend on your taxable income: 0% for lower brackets, 15% for most middle-income taxpayers, and 20% for the highest bracket ($533,400+ single, $600,050+ MFJ in 2026). The NIIT of 3.8% can apply to both components. Understanding this split is critical for tax planning — strategies like installment sales (spreading gain across multiple years) can keep you in lower capital gains brackets while the recapture portion remains fixed at 25%.
Frequently Asked Questions
What is the depreciation recapture tax rate?
Unrecaptured Section 1250 gain (depreciation claimed on real property using straight-line method) is taxed at a maximum rate of 25%. This is higher than the standard long-term capital gains rate of 15-20%. The 25% rate applies specifically to the portion of your gain equal to the depreciation you claimed or should have claimed. Source: IRS Section 1250.
Do I have to pay depreciation recapture if I never claimed depreciation?
Yes. The IRS uses the "allowed or allowable" rule — even if you did not claim depreciation deductions on your tax returns, the IRS will calculate recapture as if you had. This means you pay the 25% recapture tax on depreciation you could have claimed. Not claiming depreciation means you missed tax savings during ownership but still owe recapture on sale.
Can I avoid depreciation recapture tax?
The primary legal strategy is a Section 1031 like-kind exchange, which defers both depreciation recapture and capital gains taxes by reinvesting proceeds into another qualifying investment property. You must identify replacement property within 45 days and close within 180 days. Other strategies include installment sales to spread the tax liability and Opportunity Zone investments to defer gains.
How does a 1031 exchange affect depreciation recapture?
A 1031 exchange defers the depreciation recapture indefinitely. The deferred depreciation carries over to the replacement property as a reduced basis. If you eventually sell without doing another 1031, you owe recapture on all accumulated depreciation from every property in the exchange chain. However, if held until death, heirs receive a stepped-up basis and the recapture is eliminated entirely.
What is the difference between Section 1245 and Section 1250 recapture?
Section 1245 applies to personal property (equipment, vehicles, furniture) and recaptures depreciation at ordinary income rates (up to 37%). Section 1250 applies to real property (buildings, structures) and recaptures at a maximum 25% rate when straight-line depreciation was used. Most rental property depreciation is Section 1250. If accelerated depreciation was used (rare for real property after 1986), the excess over straight-line is recaptured as Section 1245 ordinary income.
Is depreciation recapture subject to NIIT?
Yes. Depreciation recapture gain is considered net investment income and is subject to the 3.8% Net Investment Income Tax if your MAGI exceeds $200,000 (single) or $250,000 (married filing jointly). This means the effective maximum rate on recapture can be 25% + 3.8% = 28.8%. Source: IRS Form 8960 instructions.