Depreciation Recapture Tax Calculator (Rental Property Sale)
Tax on selling a rental property: unrecaptured Section 1250 gain at up to 25%, §1245 recapture at ordinary rates, the rest at 0/15/20% — from your own rates or your 2026 income and filing status — plus the 3.8% NIIT, state tax, released passive losses, cash left after the mortgage and what a 1031 exchange would defer.
How it works
Building basis = (price + closing costs) × building share + improvements · Depreciation = building basis ÷ 27.5 (or 39) × years in service · Adjusted basis = price + closing costs + improvements − depreciation · Gain = sale price − selling costs − adjusted basis · §1245 recapture = min(gain, personal-property depreciation) at ordinary rates · Unrecaptured §1250 gain = min(remaining gain, building depreciation) at ordinary rate capped at 25% · Rest at 0/15/20% · + 3.8% NIIT + state
Depreciation is a landlord’s best tax break while they own a rental — a slice of the building’s cost deducted every year against rental income — but the IRS collects when the property is sold. The deductions lower the property’s basis, so the gain is larger, and the part of the gain that equals the building depreciation (“unrecaptured Section 1250 gain”) is taxed at the owner’s ordinary rate up to a 25% ceiling rather than the lower capital-gains rates. Depreciation on appliances, carpets, furniture and anything a cost-segregation study moved into 5-, 7- or 15-year property is Section 1245 recapture and is taxed as ordinary income with no cap. The rest of the gain gets the 0/15/20% treatment, and higher earners add the 3.8% net investment income tax plus state tax. The calculator works out the depreciation from the years or the dates the property was rented (straight line, mid-month convention, the same method as our real estate depreciation calculator) or takes the total from your returns. You can pick your rates, or let it stack the gain on your other 2026 taxable income using the IRS brackets for your filing status — useful because a large sale often pushes part of the gain into a higher band. It also counts suspended passive losses that the sale releases, shows the cash left after paying off the mortgage, and the tax a 1031 exchange would defer. Because recapture applies to depreciation “allowed or allowable”, skipping the deduction does not avoid it; a step-up in basis at death wipes the slate clean.
Worked example
Bought for $300,000 ($60,000 land) with $25,000 of improvements, depreciated 10 years at $9,636 a year ($96,364), and sold for $450,000 less $27,000 of costs: the adjusted basis is $228,636, so the gain is $194,364. $96,364 is unrecaptured §1250 gain taxed at 24% ($23,127), the other $98,000 at 15% ($14,700), NIIT adds $7,386 and a 5% state tax $9,718 — about $54,931, or 28.3% of the gain. With “From my 2026 income” instead, a married couple with $150,000 of other taxable income pays $21,899 on the §1250 gain (the first $61,400 at 22%, the rest at 24%), $14,700 at 15% on the $98,000, $3,586 of NIIT on the $94,364 of income above the $250,000 threshold, and the same $9,718 of state tax — $49,903 in all.
Sources: IRS Topic 409, Capital gains and losses (25% unrecaptured §1250 rate) · IRS Publication 544, Sales and Other Dispositions of Assets · IRS Publication 527, Residential Rental Property · IRS Rev. Proc. 2025-32 — 2026 tax brackets and capital-gains thresholds · IRS Topic 559, Net investment income tax
Frequently asked questions
What if my ordinary bracket is 22%?
Then the unrecaptured §1250 gain is taxed at 22% — the 25% is a maximum, not a flat rate. Only taxpayers whose income (including the gain) reaches the 32% bracket or above hit the cap. Choose “From my 2026 income” to see exactly which bands your gain falls into.
Does a 1031 exchange eliminate recapture?
It defers it — the depreciation carries into the replacement property’s basis and is recaptured when that property is sold in a taxable sale. Only a step-up in basis at death eliminates it. The calculator shows the tax a full exchange would defer.
What is the difference between §1245 and §1250 recapture?
Section 1250 covers the building and its structural improvements: for straight-line depreciation the recaptured part is taxed at up to 25%. Section 1245 covers personal property — appliances, carpets, furniture and the 5-, 7- and 15-year items from a cost-segregation study — and that depreciation is recaptured as ordinary income at your full rate. Choose “Enter amount” to give the two separately.
I never claimed depreciation. Do I still owe recapture?
Yes. The basis is reduced by the depreciation that was allowable, whether or not you took it, so the recapture is due anyway. You can usually catch up the missed deductions with Form 3115 (change in accounting method) before or in the year of sale.
What happens to suspended passive losses when I sell?
Rental losses you could not deduct because of the passive-activity rules are released in full when you sell the whole property to an unrelated buyer in a taxable sale. They offset the gain and other income in that year, which can cut the tax noticeably. Enter them under More options.
Is recapture due if I sell at a loss?
No. Recapture only applies to a gain. A loss on rental property held more than a year is a Section 1231 loss and is deductible against ordinary income in full.
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Educational estimate, not financial or tax advice. Rules and thresholds change — confirm current figures with the IRS/HMRC or a qualified adviser before acting.