Calculate the 25% Section 1250 recapture tax on prior depreciation deductions.
Educational estimate using common 2026 rates. Not tax advice.
Recapture applies to the lesser of your total gain or the depreciation you claimed over the holding period. That amount is taxed at the 25% Section 1250 rate. Any gain above the recaptured amount is taxed at your long-term capital gains rate.
See how recapture affects the full tax bill with the capital gains tax calculator, or model what defers in a 1031 exchange.
Every year you own a rental property, you deduct depreciation against ordinary income. The IRS keeps a tally. At sale, it recaptures those deductions, taxing the depreciated amount at up to 25% under Section 1250, regardless of whether the rest of your gain qualifies for lower long-term rates. Investors who assumed all their gain would be taxed at 15% or 20% are regularly surprised by this.
Recapture is capped at the lesser of total gain or total depreciation claimed. The recaptured amount is taxed at the 25% Section 1250 rate. Anything above that is long-term capital gain, taxed at a lower rate. A 1031 exchange defers recapture along with the rest of the gain into the replacement property.
The tax applied to prior depreciation deductions when you sell. For real estate, Section 1250 recapture is taxed at a maximum of 25%.
Section 1250 recapture on real property is capped at 25%. Section 1245 recapture on personal property (equipment, vehicles) can be taxed at ordinary income rates, which may be higher.
Yes. A 1031 exchange defers depreciation recapture along with the capital gain, into the replacement property's lower adjusted basis.
No. It is an educational estimate. Consult a tax professional.