Depreciation recapture tax calculator

Depreciation recapture — the tax that surprises rental sellers

When you sell rental real estate, the IRS "recaptures" the depreciation deductions you took along the way at a special 25% federal rate. This is on top of LTCG on the appreciation portion. Most landlords forget the recapture line item until they see the closing tax projection.

The math

adjusted basis = original basis − depreciation taken
total gain = sale price − adjusted basis
recapture amount = depreciation taken (capped at gain)
LTCG portion = total gain − recapture amount

Federal tax stack:

• Recapture: 25% on the depreciation portion (Section 1250 unrecaptured gain)
• LTCG: 0/15/20% on the appreciation portion
• NIIT: 3.8% on the entire gain (if AGI > $200k single / $250k MFJ)
• State: 0-13% depending on state

Why it stings

A property held 10 years had ~$95k in depreciation deductions on a $350k purchase. At sale, you owe 25% federal × $95k = $23,750 in recapture, plus LTCG on appreciation, plus state. On a typical sale, recapture alone is 5-8% of sale price.

The 1031 exchange exit

A 1031 exchange defers BOTH the recapture and LTCG. The depreciation history transfers to the new property; recapture is owed when the new property is eventually sold (or never, if held to death + step-up).