Depreciation Recapture Tax Calculator

Depreciation lowers your tax bill every year you own the property, and bills you back when you sell it

Owning a rental property comes with an annual depreciation deduction that reduces taxable rental income year after year — a genuine and legitimate tax benefit. Selling that property triggers depreciation recapture, which claws back part of that benefit at a flat 25 percent rate, applied to the portion of your gain equal to the depreciation you took.

This is not a penalty for doing anything wrong. It is the mechanical counterpart to the deduction: the tax code let you reduce your basis and your taxable income each year on the assumption the property was, on paper, declining in value. If it sold for more than that lower basis, some of that gain is really the return of deductions you already benefited from, and recapture taxes it accordingly.

Building the depreciable basis correctly

Only the building portion of a purchase price can be depreciated — land is explicitly excluded because it does not wear out or get consumed by use the way a structure does.

Splitting purchase price between land and building typically starts from the county property tax assessor’s allocation, which most investors use as a reasonable, defensible starting point even though it is an estimate rather than an exact market valuation. Getting this split wrong in either direction changes every downstream number — an overstated building share inflates annual depreciation deductions during ownership and inflates the eventual recapture tax at sale; an understated one does the reverse.

Why the rate is flat regardless of your tax bracket

Depreciation recapture on residential rental property is taxed at a flat 25 percent rate under the unrecaptured Section 1250 gain rules, which is different from how the rest of a long-term capital gain is typically taxed.

This flat rate applies specifically to the gain attributable to depreciation already claimed, capped at the total depreciation taken — it cannot exceed that amount even if the total gain on sale is larger. Any remaining gain above the depreciation-attributable portion is taxed at standard long-term capital gains rates, which vary by income level and can be lower or, in some cases, comparable to the flat recapture rate.

The trap: depreciation “allowed or allowable”

This is the detail that catches investors who did not realize depreciation was available, forgot to claim it on a return, or used an accountant who missed it: the IRS calculates recapture based on depreciation you were entitled to claim, not merely what you actually claimed.

In practice, this means skipping the deduction during ownership does not avoid the eventual recapture tax at sale — you effectively pay it either way, once through a smaller deduction during ownership, and again through recapture calculated as if you had taken the deduction properly. If you suspect depreciation was missed on past returns, addressing it before a sale, through an amended return or a change in accounting method, is a conversation worth having with a tax professional rather than assuming it is a moot point.

Deferring recapture entirely with a 1031 exchange

A like-kind exchange under Internal Revenue Code Section 1031 allows an investor to defer both depreciation recapture and the remaining capital gains tax by rolling proceeds into a replacement investment property, rather than recognizing the gain at the time of sale.

This requires meeting strict identification and closing timelines, using a qualified intermediary to hold proceeds between the sale and purchase, and structuring the transaction correctly before the original sale closes — it cannot be arranged retroactively after the fact. For an investor planning to continue investing in real estate rather than cash out, this is frequently the single largest tax-planning lever available, and it is worth exploring well before a sale date is set rather than after.

Running the numbers before you list

Knowing the recapture tax in advance changes the actual net proceeds a sale will produce, which matters for deciding whether to sell, refinance instead, or exchange into another property.

This calculator uses standard 27.5-year straight-line depreciation for residential rental property under current IRS rules — commercial property uses a different 39-year schedule, and the calculation would need adjusting accordingly. Once the recapture tax and remaining capital gain are known, the capital gains calculator can help estimate the tax on that remaining portion at your specific income level, giving a complete picture of the tax cost of selling rather than exchanging or holding.