Depreciation Recapture
When you sell, the depreciation you deducted over the years is “recaptured” and taxed — up to 25% federally. Estimate that tax before you sell or exchange.
How this is calculated
Depreciation you claimed on real property is recaptured on sale as “unrecaptured Section 1250 gain,” taxed at your ordinary rate but capped at 25% federally. Recapture applies only to the portion of your gain attributable to depreciation — it cannot exceed your total gain. A 1031 exchange defers it entirely.
Notes & assumptions
- Recapture cannot exceed your total gain on the sale.
- The 25% figure is a federal maximum; your effective rate may be lower.
- State tax may also apply to the recaptured amount.
Frequently asked questions
What is depreciation recapture?
It is the tax on the depreciation deductions you claimed while you owned the property. For real estate it is taxed as unrecaptured Section 1250 gain, up to 25% federally.
Can a 1031 exchange defer recapture?
Yes. A properly structured 1031 exchange defers depreciation recapture along with the capital-gains tax and NIIT.
Why is it capped at 25%?
For real property, the depreciation-related portion of gain is taxed at a maximum federal rate of 25%, rather than your full ordinary-income rate.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
This calculator is for educational estimation only and is not tax, legal, or investment advice. Results are approximate and depend on assumptions that may not fit your situation; confirm any figures with your own CPA and attorney before acting. Securities are offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.