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Depreciation recapture calculator

Estimate the federal tax when you sell a rental property you have depreciated. Enter what you paid, your improvements, the depreciation you have taken and the sale. The results split the gain into depreciation recapture, taxed at your ordinary rate up to 25%, and the capital gain on the rest.

What you paid, including closing costs you added to the property's basis.

A new roof, an addition or a kitchen remodel. Leave out repairs you deducted.

The total from your depreciation schedule or past returns.

Agent commission, transfer taxes and closing costs you pay to sell.

Your federal tax bracket. The calculator applies at most 25% to the recapture.

Usually 0%, 15% or 20%, depending on your income.

Your results

Estimate

Tax on depreciation recapture: $19,200.00

Gain on the sale and depreciation recaptureGain of $183,000: sale price $450,000, less selling costs $27,000 and an adjusted basis of $240,000. The tax is $19,200 on depreciation recapture of $80,000 and $15,450 on the remaining $103,000 of gain, an estimated $34,650 of federal tax.$450kSale-$27kSelling-$240kBasis$183kGain$80kRecapture
Depreciation recapture
$80,000.00
Total gain on the sale
$183,000.00
Adjusted basis
$240,000.00
Gain taxed as a capital gain
$103,000.00
Tax on the capital gain
$15,450.00
Estimated federal tax on the sale
$34,650.00
  • An estimate of federal income tax for a rental held more than a year. It leaves out state income tax, the 3.8% net investment income tax that applies above certain incomes, and any 1031 exchange. Ask a tax professional before you sell.

Results are estimates for planning only. They are not legal, tax or investment advice, and they apply no state or local rules. Check your lease, your local laws and a qualified professional before you rely on a number.

How depreciation recapture is calculated

Gain = (sale price - selling costs) - (cost + improvements - depreciation); recapture = the gain, up to the depreciation taken

Depreciation lowers your basis in the property each year you take it. The adjusted basis is what you paid, including purchase costs, plus improvements, less the depreciation taken. With $300,000 of cost, $20,000 of improvements and $80,000 of depreciation, the adjusted basis is $300,000 + $20,000 - $80,000 = $240,000.

The gain is the sale price less selling costs, less the adjusted basis. The part of the gain up to the depreciation taken is depreciation recapture, which the IRS calls unrecaptured section 1250 gain for a rental building. It is taxed at your ordinary income tax rate, at most 25%. Any gain above that is a long-term capital gain for a property held more than a year, taxed at 0%, 15% or 20% depending on your income.

This calculator estimates federal income tax only. It leaves out state income tax, the 3.8% net investment income tax that applies above certain incomes, and 1031 exchanges, and it assumes the building was depreciated on a straight line, as rental buildings are. It is general information and is not tax advice, so check the numbers with a tax professional before you sell.

Worked example

You bought a rental for $300,000 including purchase costs, added a $20,000 roof and took $80,000 of depreciation. You sell it for $450,000 and pay $27,000 to sell. Your ordinary rate is 24% and your long-term capital gains rate is 15%.

  1. Adjusted basis: $300,000 + $20,000 - $80,000 = $240,000.
  2. Amount realized: $450,000 - $27,000 = $423,000.
  3. Total gain: $423,000 - $240,000 = $183,000.
  4. Depreciation recapture: the gain up to the $80,000 of depreciation, so $80,000, taxed at 24%: $19,200.
  5. Capital gain: $183,000 - $80,000 = $103,000, taxed at 15%: $15,450.
  6. Estimated federal tax: $19,200 + $15,450 = $34,650.

The tax on depreciation recapture is $19,200.00, and the estimated federal tax on the whole sale is $34,650.00.

Frequently asked questions

What is depreciation recapture?

When you sell a rental for more than its adjusted basis, the part of the gain that comes from depreciation you took is taxed separately from the rest. That part is depreciation recapture. On a rental building it is taxed at your ordinary income tax rate, up to 25%.

What is the tax rate on depreciation recapture?

For a residential rental building, the recaptured amount is taxed at your ordinary income tax rate with a maximum of 25%. With a 32% ordinary rate, the recapture is taxed at 25%; with a 22% rate, at 22%. The rest of the gain is taxed at the long-term capital gains rate.

Do I owe recapture on depreciation I never claimed?

Generally yes. The IRS reduces your basis by the depreciation you were allowed to take, whether or not you claimed it, so the recapture can apply anyway. A tax professional can tell you whether you can still claim the missed depreciation before you sell.

Can I defer depreciation recapture?

A like-kind exchange under section 1031 can defer the tax when you sell one investment property and buy another under the exchange rules. The deferred gain carries into the new property. The rules and deadlines are strict, so plan the exchange with a tax professional before you sell.

What if I sell at a loss?

If the sale price less selling costs is below your adjusted basis, there is no gain, so there is no recapture and no capital gains tax. The calculator shows $0 of tax and a note.

Keep the records your tax professional will ask for

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