Rental Property Depreciation Recapture Calculator
Selling a rental property? Calculate total federal + state tax including Section 1250 depreciation recapture (taxed at 25%), Section 1231 long-term capital gains, NIIT, and state tax — typically 25–40% of total gain.
| Amount realized (sale − costs) | — |
| Adjusted basis (purchase + improvements − depreciation) | — |
| Total gain | — |
| Tax breakdown | |
| Depreciation recapture (25%) | — |
| LTCG portion | — |
| NIIT 3.8% | — |
| State tax | — |
| Total tax | — |
Selling a rental property triggers three layers of federal tax: Section 1250 depreciation recapture (taxed at a flat 25% on the depreciation taken), Section 1231 long-term capital gains on the remaining appreciation (0/15/20%), and Net Investment Income Tax (NIIT, 3.8% for high earners). State tax often adds another 5–13%.
How Depreciation Recapture Works
Every year you owned the rental, you (or should have) claimed depreciation against rental income — typically $7,000–$15,000/year on a $300K building. The IRS recovers this benefit at sale: 25% federal tax on the total depreciation taken. Note: depreciation recapture is mandatory under the 'allowed or allowable' rule even if you didn't actually deduct it.
Three Federal Tax Layers
1. Depreciation recapture: 25% × accumulated depreciation. 2. Long-term capital gains: 0/15/20% on the appreciation above original basis. 3. NIIT: 3.8% if MAGI > $200K single / $250K joint.
Strategies to Defer or Eliminate
Section 1031 exchange: defer all taxes by trading into another investment property. Installment sale: spread gain over multiple years by carrying the financing. Step-up in basis at death: heirs inherit at fair market value — completely eliminates depreciation recapture and capital gains for the heir.
Last updated May 2026. Sources: IRS Publication 544, IRS Form 4797.