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Depreciation recapture calculator: what will the 25% cost you?

Every year you depreciated a rental or commercial building you lowered your taxable income — and lowered your adjusted basis by the same amount. When you sell, that depreciation comes back as unrecaptured §1250 gain, taxed at up to 25%, before the regular 0/15/20% capital gains rates even start. Build your basis line by line and see the whole bill.

1 · What you paid

Purchase price If you exchanged into this property, the price of the replacement property.

Purchase closing costs Title, escrow, recording, transfer tax you paid to buy. Not loan fees.

Capital improvements since Roof, additions, remodels. Not repairs.

Property type

2 · What lowered your basis

Depreciation taken (allowed or allowable) Total from every year’s Form 4562 / Schedule E. Enter it even if you never claimed it — §1016(a)(2) lowers your basis by the depreciation you were allowed. If you exchanged into this property, include depreciation from the property you gave up; it carries over.

Don’t know it? Estimate it

Building value (not land)

Years owned as a rental

Of that, from cost segregation / equipment optional §1245 property. Recaptured as ordinary income, not capped at 25%. Leave 0 if unsure.

Gain deferred from a prior 1031 exchange The deferred gain carries in as a lower basis.

Casualty losses deducted + insurance reimbursements received Both reduce basis (IRS Pub 551). Leave 0 if none.

3 · The sale

Sale price

Selling costs (%) Commission + closing. 6% is typical.

Mortgage / loan payoff at closing Every loan secured by the property, including any cash-out refinance or HELOC.

4 · You

Filing status

Other taxable income this year

Your state

ESTIMATED TOTAL TAX ON THE SALE

Key figures
Adjusted basis
Total gain
Unrecaptured §1250 gain (up to 25%)
Total estimated tax
Cash at closing after loan payoff
Cash left after tax

Your adjusted basis, line by line
Purchase price
+ Purchase closing costs
+ Capital improvements
− Depreciation (allowed or allowable) §1016(a)(2)
− Gain deferred from a prior 1031
− Casualty losses / insurance reimbursements
Adjusted basis §1011

Your gain
Sale price
− Selling costs
= Amount realized the loan is NOT subtracted — Reg. 1.1001-2
− Adjusted basis
Total gain §1001(b)
§1245 recapture (ordinary income)
Unrecaptured §1250 gain (taxed up to 25%)
Remaining long-term capital gain (0/15/20%)

The tax, layer by layer (2026)
§1245 recapture at ordinary rates
Unrecaptured §1250 gain
Capital gain at 0%
Capital gain at 15%
Capital gain at 20%
Net investment income tax 3.8% §1411
State income tax
Total estimated tax

Tax vs cash
Sale price
− Selling costs
− Loan payoff
Cash at closing
− Total estimated tax
Cash left after tax

Education, not tax advice. 2026 federal brackets. “Other taxable income” is treated as both taxable income and MAGI. Unrecaptured §1250 gain is stacked on top of your other income and each slice taxed at the lower of its ordinary bracket or 25% (§1(h)(1)(E)); the remaining gain fills the 0/15/20% bands above that. Assumes the property was held more than a year, straight-line depreciation on the building, and that the 3.8% NIIT applies (it may not if you qualify as a real estate professional). No §121 home-sale exclusion, passive-loss carryforwards, AMT or state depreciation differences are modelled. Have a CPA confirm before you sign anything.

Audit trail / Sources

Every rule this calculator applies, and where it comes from. Rates are 2026 federal; state rates are the same table our capital gains calculator uses.

IRC §1011 — Adjusted basis is the starting point for gain or loss.
IRC §1016(a)(2) — Basis is reduced by depreciation “allowed or allowable” — claimed or not.
IRC §1001(b) — Gain = amount realized minus adjusted basis.
Treas. Reg. §1.1001-2 — Amount realized includes liabilities the seller is relieved of — debt does not reduce the gain.
IRC §1(h)(1)(E) and §1(h)(6) — Unrecaptured §1250 gain is taxed at no more than 25%; the 0/15/20% layers apply to the rest.
IRC §1250 — Recapture on depreciable real property (buildings).
IRC §1245 — Recapture on personal property (equipment, cost-segregation components) — taxed as ordinary income.
IRC §1411 — 3.8% net investment income tax above $200,000 single / $250,000 joint MAGI (not indexed).
IRC §453(i) — In an installment sale, ordinary-income recapture (§1245 and any §1250 additional depreciation) is recognized in the year of sale.
Treas. Reg. §1.453-12 — Unrecaptured §1250 gain in an installment sale is taken into account as payments are received, before other long-term gain.
Treas. Reg. §15a.453-1(b)(3) — Qualifying debt assumed by the buyer in excess of basis is a payment in the year of sale.
Treas. Reg. §1.1031(d)-2 — Net debt relief in a like-kind exchange is treated as money received (mortgage boot).
IRS Publication 544 — Sales and Other Dispositions of Assets — recapture, installment sales, like-kind exchanges.
IRS Publication 551 — Basis of Assets — what increases and decreases basis (improvements, depreciation, casualty losses, insurance reimbursements).
IRS Publication 946 — 27.5-year residential and 39-year nonresidential recovery periods.
2026 brackets: Rev. Proc. 2025-32 — 2026 ordinary brackets and the 0/15/20% capital gains breakpoints used here.
California FTB rate schedules, R&TC §17041 and §17043 — California taxes capital gain as ordinary income, 1%–12.3% plus the 1% Mental Health Services Tax over $1M.

The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here.

Questions people ask

What is depreciation recapture on a rental property?

When you sell depreciated real estate, the part of your gain that comes from depreciation you took (or could have taken) is called unrecaptured section 1250 gain. It is taxed at your ordinary rate but capped at 25% under IRC 1(h)(1)(E) — not at the 0/15/20% capital gains rates. The rest of the gain is ordinary long-term capital gain.

What is unrecaptured section 1250 gain?

It is defined in IRC 1(h)(6): the gain on real property that would be ordinary income if section 1250 recaptured all depreciation, not just the accelerated part. For buildings depreciated straight-line since 1987 that is simply the depreciation taken, limited to the gain on the sale.

I never claimed depreciation. Do I still pay recapture?

Usually yes. IRC 1016(a)(2) reduces your basis by depreciation “allowed or allowable” — the amount you were entitled to take, whether or not you took it. If you missed depreciation, a CPA can often recover it with Form 3115 before the sale; ask before you close.

Is depreciation recapture always 25%?

No. 25% is the ceiling. If your ordinary bracket on that slice is lower (10%, 12%, 22% or 24%), that is the rate. This calculator stacks the recapture on top of your other income and taxes each slice at the lower of its bracket or 25%.

Does a 1031 exchange avoid depreciation recapture?

It defers it. The depreciation carries into the replacement property through a lower basis, and it is taxed when that property is sold in a taxable sale. Any boot you receive — including debt paid off and not replaced — is taxable in the year of the exchange, recapture first.

Residential rental vs commercial: what is the difference?

Residential rental buildings are depreciated over 27.5 years, commercial buildings over 39 years (IRS Pub 946). Land is never depreciated. The recapture rules are the same; the commercial building simply accumulates depreciation more slowly.