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Depreciation Recapture Calculator

How much tax is due when you sell a rental, split into Section 1245 recapture, 25% Section 1250 gain, and capital gain?

Your numbers

Estimated tax on the sale

$40,050

Adjusted basis at sale$310,000
Total gain$207,000
Recapture at ordinary rates (Section 1245)$0.00
Tax on ordinary-rate recapture$0.00
Unrecaptured Section 1250 gain (25% cap)$90,000
Tax on Section 1250 gain$22,500
Remaining long-term capital gain$117,000
Long-term capital gains tax$17,550
Net investment income tax$0.00
State tax$0.00
Total tax as a share of the gain19.3%
  • Unrecaptured Section 1250 gain is taxed at 25% here: your ordinary rate, capped at 25%.

Tip. Educational estimate with the assumptions listed on this page. Not tax, legal, or investment advice.

Assumptions

  • The ordinary-rate slice comes out of the gain first, then unrecaptured 1250 gain, then long-term capital gain.
  • Unrecaptured 1250 gain is taxed at your top rate, capped at 25%. A gain that spans brackets can owe a little less.
  • NIIT and state tax are a flat rate on the whole gain. Installment sales and 1031 exchanges are not modeled.

Explore the numbers

Examples

Load a scenario, then change one input at a time.

Example 1

Held 7 years

$90k of building depreciation on a $550k sale.

Estimated tax on the sale

$40,050

Example 2

After a cost seg study

$180k of depreciation, $75k of it 5 and 7 year parts.

Estimated tax on the sale

$79,086

Example 3

High earner, state tax

$800k sale at 37% and 20%, NIIT and 5% state.

Estimated tax on the sale

$131,796

What this calculates

Free depreciation recapture calculator for rental property. Split your gain into 1245 recapture, 1250 gain capped at 25%, capital gain, NIIT and state tax.

How to use it

  1. Enter what you paid plus closing costs and improvements, land included.
  2. Pull total depreciation from Form 4562 or your depreciation schedule. Count what you could have claimed, too.
  3. If you did a cost segregation study, enter the depreciation on 5 and 7 year parts, plus bonus on 15 year parts above straight-line, in the ordinary-rate box.
  4. Pick NIIT if your income is over $200,000 single or $250,000 joint, then add your state rate.

Common mistakes

  • Taxing the whole gain at 15%.
  • Leaving land out of the original basis. The sale price includes land, so the basis must too.
  • Forgetting selling costs, which lower the gain.
  • Treating cost segregation depreciation as 25% gain. The 5 and 7 year parts come back at ordinary rates.
  • Skipping depreciation you never claimed. Recapture counts it anyway.

Formula

Gain = (sale price − selling costs) − (original basis − depreciation). Ordinary-rate recapture = min(gain, 1245 depreciation). Unrecaptured 1250 gain = min(gain left, other depreciation), taxed at your rate up to 25%. The rest is long-term capital gain.

How depreciation recapture works

What depreciation recapture is

Each year you own a rental, depreciation lowers your taxable income. It also lowers your basis in the property. When you sell, the gain is measured from that lower basis. The part of the gain that comes from past depreciation is taxed differently from the rest. That part is called depreciation recapture.

The rates

For the building itself, the gain from straight-line depreciation is called unrecaptured Section 1250 gain. It is taxed at your ordinary rate, but no higher than 25%. Personal property, such as appliances, carpet, furniture, and the 5 and 7 year parts found by a cost segregation study, is Section 1245 property. Its recapture is taxed at ordinary rates, up to 37%. Bonus depreciation on 15 year land improvements is also recaptured at ordinary rates to the extent it beat straight-line. Gain above all the depreciation is long-term capital gain, taxed at 0%, 15% or 20% for most sellers. High earners may also owe the 3.8% net investment income tax, and most states tax the gain too.

How this calculator works

It subtracts total depreciation from your original basis to get adjusted basis. It subtracts selling costs from the sale price to get the amount realized. The gain is the difference. The ordinary-rate slice comes out of the gain first, then unrecaptured 1250 gain, then long-term capital gain. Each slice is taxed at its own rate, and NIIT and state tax are added on the whole gain if you choose them.

With the defaults, a $550,000 sale with $33,000 of costs, a $400,000 basis, and $90,000 of depreciation gives a $207,000 gain. Of that, $90,000 is unrecaptured 1250 gain, taxed at 25% because the 32% rate is capped. That is $22,500. The other $117,000 is long-term gain at 15%, or $17,550. The total is $40,050.

Worked example: a sale after a cost segregation study

This is an illustration, not a forecast. Take the same $400,000 property, but a cost segregation study and bonus depreciation brought total depreciation to $180,000 by the sale. Of that, $75,000 was on 5 and 7 year parts. The seller is in the 32% bracket, owes NIIT, and lives in a state with no income tax.

Adjusted basis is $400,000 minus $180,000, or $220,000. The amount realized is $550,000 minus $33,000, or $517,000. The gain is $297,000. The first $75,000 is Section 1245 recapture at 32%, which is $24,000. The next $105,000 is unrecaptured 1250 gain at 25%, which is $26,250. The last $117,000 is long-term gain at 15%, which is $17,550. NIIT at 3.8% of $297,000 adds $11,286. The total is $79,086, about 26.6% of the gain.

The study did not lose money here. It moved deductions into the early years, when the seller used them at 32% or more. The sale gives much of that back. That is why a study fits best when you plan to hold for years, exchange, or keep the property for heirs.

Where to find your numbers

Total depreciation is on your past Form 4562 filings and your preparer's depreciation schedule. If you had a cost segregation study, the report lists each asset class, so you can add up the 5 and 7 year parts. Original basis is the purchase price plus closing costs and later improvements, including the land. Report the sale on Form 4797.

Ways investors plan for it

A 1031 exchange into another investment property can defer both recapture and capital gain. Holding the property until death can step up the basis for heirs under current law. Selling in a lower-income year can lower the rates. Each path has rules, so model the options before you list.

FAQ

How do I calculate depreciation recapture?

Start with the gain: sale price minus selling costs, minus your adjusted basis. Adjusted basis is what you paid, land included, minus the depreciation you took or could have taken. Recapture is the smaller of that gain and the total depreciation. Then split it: depreciation on Section 1245 property is taxed at ordinary rates, and depreciation on the building is unrecaptured Section 1250 gain, taxed at no more than 25%.

What is the depreciation recapture tax rate?

It depends on the property. Unrecaptured Section 1250 gain on a rental building is taxed at your ordinary rate, capped at 25%. Section 1245 recapture on personal property, such as appliances, carpet and furniture, is taxed at ordinary rates up to 37%. Gain above the depreciation is long-term capital gain at 0%, 15% or 20%. The 3.8% NIIT can apply on top.

Is depreciation recapture taxed as ordinary income?

Section 1245 recapture is. On a rental building, the depreciation comes back as unrecaptured Section 1250 gain. It is taxed at ordinary rates, but never more than 25%. So a seller in the 32%, 35% or 37% bracket pays 25% on that slice.

How does cost segregation change depreciation recapture?

A cost segregation study moves part of the building into 5, 7 and 15 year classes. You get more depreciation early, so you have more to recapture when you sell. Depreciation on the 5 and 7 year parts is Section 1245 recapture at ordinary rates. Bonus on 15 year land improvements is recaptured at ordinary rates to the extent it beat straight-line. Enter that amount in the ordinary-rate box.

Can a 1031 exchange avoid depreciation recapture?

A valid 1031 exchange into other real estate defers both recapture and capital gain. The deferred depreciation carries into the new property and can come back when you sell it in a taxable sale. Personal property is not like-kind after 2017, so some Section 1245 recapture can still come due. Check this with your CPA before you sign.

Does the 3.8% net investment income tax apply?

It can. NIIT applies to gain on a rental sale when your modified AGI is over $200,000 single or $250,000 married filing jointly. Some real estate professionals who are active in the business may not owe it. Pick yes if it applies to you.

What if I never claimed depreciation?

Recapture is based on depreciation allowed or allowable. If you could have claimed it, it still lowers your basis and counts. You can often catch up missed depreciation with Form 3115 before you sell. Ask a CPA.

Does depreciation recapture apply when I sell my home?

It can. The home sale exclusion does not cover depreciation taken after May 6, 1997, such as on a home office or a period when the home was rented out. That part is taxed as unrecaptured Section 1250 gain, up to 25%.

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