Calculate depreciation recapture tax when selling rental property. Section 1250 25% rate, Section 1231 capital gains, and your net proceeds after tax.
When you sell a rental property for more than its adjusted basis, the IRS requires you to "recapture" the depreciation benefits you claimed over the years. Depreciation allowed you to deduct a portion of the property's cost each year, reducing your taxable income. Upon sale, the IRS taxes that previously deducted depreciation at a special Section 1250 recapture rate of up to 25% — higher than the long-term capital gains rate on the remaining profit.
Depreciation recapture applies to residential rental property (depreciated over 27.5 years under MACRS GDS) and commercial real estate (depreciated over 39 years). The recapture amount is the lesser of the total accumulated depreciation claimed (or allowable) and the total gain on the sale. This ensures the IRS recovers the tax benefit you received from depreciation deductions, taxed as unrecaptured Section 1250 gain.
The remaining gain after recapture is taxed as a Section 1231 capital gain at your long-term capital gains rate (0%, 15%, or 20% depending on your income). In 2026, the 0% rate applies up to $48,350 (single) / $96,700 (MFJ); the 15% rate up to $533,400 (single) / $600,050 (MFJ); and the 20% rate above those thresholds. High-income taxpayers may also owe the 3.8% Net Investment Income Tax (NIIT) on the lesser of net investment income or modified adjusted gross income over $200,000 (single) / $250,000 (MFJ).
Residential rental property uses MACRS GDS with a 27.5-year recovery period. Land value is never depreciable.
Commercial real estate is depreciated over 39 years using the straight-line method under MACRS.
Unrecaptured Section 1250 gain is taxed at a maximum rate of 25%, regardless of your ordinary income tax bracket.
An additional 3.8% tax applies to net investment income over $200,000 (single) or $250,000 (married filing jointly).
The calculation follows a clear sequence under IRS rules. First, determine your cost basis for depreciation by subtracting land value from the purchase price plus improvements. Only the building (improvements) can be depreciated — land is never depreciable. Divide this cost basis by the recovery period (27.5 or 39 years) to get annual depreciation, then multiply by years owned to find accumulated depreciation.
Next, calculate the adjusted basis by adding improvements to the purchase price and subtracting accumulated depreciation. The total gain on sale is the sale price minus selling costs minus adjusted basis. The depreciation recapture is the lesser of accumulated depreciation and total gain, taxed at 25%. The remaining gain is taxed at the long-term capital gains rate. If the total gain is zero or negative (a loss), there is no depreciation recapture — the loss is treated as a capital loss.
âš ï¸ Important Disclaimer: This Depreciation Recapture Calculator is for informational and educational purposes only. It provides estimates based on standard IRS rules and does not account for state taxes, bonus depreciation phases, cost segregation studies, or special circumstances. Tax laws are complex and subject to change. Results should be verified with a qualified tax professional or CPA before making any financial decisions. This calculator does not provide tax or legal advice.