Depreciation Recapture Calculator
The sale
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Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- United States — state and local practice
- Scope and limitations
- Educational estimate only. U.S. real estate costs are local: property tax rates, transfer and recording taxes, title practice, who customarily pays which closing cost, and landlord-tenant rules all change by state and often by county or city. Agent commission is negotiable and, since the 2024 NAR settlement, buyer-agent compensation is negotiated separately rather than assumed. Only a lender's Loan Estimate, a title company's fee sheet or a signed contract binds a number.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the sale price, your original basis, the depreciation you have taken, and the selling costs.
- 02
Set your long-term capital gains rate — 0%, 15% or 20% depending on your income.
- 03
Open Advanced options for the mortgage payoff, your ordinary income rate, the net investment income tax and your state rate.
- 04
Read the total tax, split into the section 1250 layer and the capital gains layer.
- 05
Check the cash-in-hand figure. It is the sale proceeds after the loan and the tax, which is the number that actually matters.
Formula
The adjusted basis is the original basis less accumulated depreciation. The amount realized is the sale price less selling costs, and the total gain is amount realized minus adjusted basis — if that is zero or less the page reports a loss and zeroes every tax line. The gain is then allocated in layers: first to unrecaptured section 1250 up to the amount of depreciation taken, then the remainder as a long-term capital gain. The recapture rate is the lower of the 25% ceiling and your ordinary income rate, which is why both are fields — 25% is a maximum, not a flat rate. Federal capital gains tax applies to the second layer at your long-term rate; the net investment income tax and state tax apply to the whole gain. Cash in hand is the amount realized less the mortgage payoff less the total tax.
Example
Selling for $480,000 a rental with a $320,000 original basis, $63,000 of accumulated depreciation and $33,600 of selling costs, at a 15% capital gains rate, a 22% ordinary rate, 3.8% NIIT, 5% state and a $180,000 mortgage. Step 1 — Adjusted basis: $320,000 − $63,000 = $257,000. Step 2 — Amount realized: $480,000 − $33,600 = $446,400. Step 3 — Total gain: $446,400 − $257,000 = $189,400. Step 4 — The layers. Unrecaptured section 1250 takes the first $63,000, taxed at the lower of 25% and your 22% ordinary rate — so 22%, giving $13,860. The remaining $126,400 is a long-term capital gain at 15%, giving $18,960. Step 5 — NIIT at 3.8% on the whole gain: $7,197. State at 5%: $9,470. Total tax: $49,487, an effective 26.1% on the gain. Cash in hand after the mortgage: $216,913. The number to sit with is that effective rate. The headline capital gains rate is 15%, and the actual bill is 26.1% — because depreciation comes back at a higher rate, and because NIIT and state tax apply to everything. A seller who budgeted 15% is $21,000 short.
Definitions
- Unrecaptured section 1250 gain
- The portion of gain attributable to depreciation on real property, taxed at up to 25%.
- Adjusted basis
- Original basis plus improvements minus accumulated depreciation. What the gain is measured against.
- Amount realized
- Sale price minus selling costs. The top of the gain calculation.
- Accumulated depreciation
- Everything deducted over the holding period. The size of the recapture layer.
- Allowed or allowable
- The rule that recapture applies to depreciation you could have taken, whether claimed or not.
- 1031 exchange
- A like-kind exchange deferring the tax by rolling proceeds into another investment property, on a 45/180-day timetable.
- Qualified intermediary
- The third party who must hold the proceeds for a 1031 exchange to be valid. Touching the money disqualifies it.
- Stepped-up basis
- The reset of basis to market value at death, which eliminates both recapture and capital gains for heirs.
- NIIT
- The 3.8% net investment income tax on investment income above $200,000 single or $250,000 joint.
- Long-term capital gain
- Gain on an asset held over a year, taxed at 0%, 15% or 20% federally.
- Section 1231
- The provision treating gains on business property as capital and losses as ordinary — favourable in both directions.
- Effective rate
- Total tax divided by total gain. Usually well above the headline capital gains rate once recapture, NIIT and state tax are counted.
Good to know
The 25% is a ceiling, not a rate
This is the most widely repeated error about selling a rental. Unrecaptured section 1250 gain is taxed at your ordinary income rate, capped at 25% — so an investor in the 22% bracket pays 22% on it, not 25%. Here $63,000 of accumulated depreciation comes back at 22% for $13,860, and calling it 25% would overstate the bill by nearly $1,900. The cap matters at the top: a seller in the 32%, 35% or 37% bracket pays 25% and no more. The practical consequence is that the year you sell is a lever. A sale in a low-income year — a sabbatical, a retirement year before Social Security and required distributions begin, a year with large offsetting losses — can genuinely reduce the recapture rate, and the gain itself may fall into a lower long-term capital gains bracket at the same time.
Recapture applies whether or not you claimed it
The statute recaptures depreciation allowed or allowable. Allowable is the operative word: if you were entitled to the deduction and did not take it, the IRS still reduces your basis as though you had. This is the trap that catches accidental landlords — someone who rented out a former home for several years without a tax preparer, never claimed depreciation, and then discovers at sale that they owe tax on a deduction they never received. There is a remedy: Form 3115 allows a change in accounting method to claim the missed depreciation as a catch-up adjustment in the current year, without amending years of returns. It is worth the professional fee, because it converts a pure loss into a large current deduction. But it has to be done before the sale is filed, which is why the discovery timing matters so much.
How the gain splits, and why the order matters
A sale produces one gain that is then divided. Here a $189,400 total gain splits into $63,000 of depreciation recaptured at ordinary rates and $126,400 of remaining gain taxed as a long-term capital gain at 15%. The split is not proportional and not optional — depreciation comes back first, at the higher rate, and only the excess gets capital gains treatment. On top of both sit the 3.8% net investment income tax for higher earners and state income tax, which most states apply at ordinary rates with no preferential capital gains treatment. Stacked together they take the effective rate on the gain to 26.1% here, well above the 15% headline that investors tend to have in mind. The full bill is $49,487, leaving $216,913 in hand after the mortgage payoff.
The 1031 exchange, and its deadlines
A section 1031 like-kind exchange defers the entire liability — recapture and capital gain both — by rolling the proceeds into replacement investment property. It is the reason many long-term investors never pay this tax: exchange repeatedly, and the deferred liability follows the basis into each new property until death, at which point a step-up in basis for the heirs eliminates it. The mechanics are unforgiving. A qualified intermediary must hold the proceeds — touching the money disqualifies the exchange. Replacement property must be identified within 45 days of closing and acquired within 180 days, and neither deadline extends for weekends, holidays or a failed deal. The replacement must be equal or greater in value and debt, or the shortfall becomes taxable boot. And since 2018 the provision applies only to real property, not equipment or vehicles.
What else can absorb the bill
Short of an exchange, several things reduce it. Passive activity losses suspended in earlier years — the ones disallowed because your income was too high to deduct them — are released in full in the year you dispose of the property, and they offset the gain directly. Capital losses harvested elsewhere in the portfolio offset the capital gain portion, though not the recapture. An installment sale spreads the capital gain across the years you receive payments, which can keep you out of the higher brackets and out of the 3.8% NIIT threshold — but recapture is generally taxed in full in the year of sale regardless. And converting the property to a primary residence before selling helps far less than people expect: the section 121 exclusion does not shelter depreciation taken after May 1997, and periods of non-qualified use are allocated out of the exclusion.
Frequently asked questions
What is depreciation recapture?
When you sell a rental, the depreciation you deducted over the years is taxed back. For real property it is called unrecaptured section 1250 gain and it is taxed at up to 25% — higher than the long-term capital gains rate on the rest of the profit.
Is the rate always 25%?
No — 25% is a ceiling, not a fixed rate. The recapture is taxed at your ordinary income rate up to a maximum of 25%. Someone in the 22% bracket pays 22%, which is why the rate is a field on this page rather than a constant.
What if I never claimed the depreciation?
You are taxed anyway. The rule is depreciation "allowed or allowable" — the IRS recaptures what you could have deducted whether or not you did. Skipping the deduction means paying the tax without ever having received the benefit, which is the worst of both.
Can I avoid recapture entirely?
Three routes. A 1031 exchange defers it by rolling into another investment property. Holding until death gives heirs a stepped-up basis that eliminates it. Converting to a primary residence helps only partially — depreciation taken after May 1997 is still recaptured even if the section 121 exclusion covers the rest.
How does a 1031 exchange work?
You sell, a qualified intermediary holds the proceeds, and you identify a replacement property within 45 days and close within 180. Both deadlines are strict and not extendable. It defers the tax rather than forgiving it, and the deferred amount carries into the new property's basis.
What is NIIT and does it apply?
The net investment income tax, 3.8% on investment income above $200,000 of modified adjusted gross income for single filers or $250,000 for joint. A large property sale frequently pushes a seller over the threshold in the year of sale even if their normal income is well below it.
Do selling costs reduce the gain?
Yes. Commission, transfer taxes, title fees and attorney costs reduce the amount realized, which reduces the gain dollar for dollar. On these figures $33,600 of selling costs saves about $8,700 of tax.
Which layer is taxed first?
The depreciation layer. Total gain is allocated first to unrecaptured section 1250 up to the amount of accumulated depreciation, and only the excess is taxed as a long-term capital gain. When the gain is smaller than the depreciation taken, the entire gain is recapture.
Does the state tax it too?
Most do, and most do not distinguish recapture from ordinary capital gains — they simply tax the whole gain at the state rate. Nine states have no income tax at all, which makes a sale there materially cheaper.
What happens if I sell at a loss?
There is no recapture and no capital gains tax, and the page reports that. A loss on a rental is generally deductible as a section 1231 loss, unlike a loss on a personal residence — but note that the depreciation you took lowered your basis, so a sale that feels like a loss can still be a taxable gain.
Why is the effective rate higher than my capital gains rate?
Because the recapture layer is taxed above it, and NIIT and state tax apply to the whole gain. On these defaults the blended effective rate is 26.1% against a 15% headline capital gains rate — a difference worth reserving for.
When is the tax due?
With the return for the year of sale, and estimated payments may be required in the quarter of the sale to avoid an underpayment penalty. A large sale in January and a tax bill fifteen months later is how people spend money they owed.