{"id":1024,"date":"2026-08-27T08:28:30","date_gmt":"2026-08-27T12:28:30","guid":{"rendered":"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/"},"modified":"2026-08-27T08:28:30","modified_gmt":"2026-08-27T12:28:30","slug":"depreciation-recapture-calculator-how-to-use","status":"publish","type":"post","link":"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/","title":{"rendered":"Depreciation Recapture Calculator: How to Estimate Section 1250 Tax (2026)"},"content":{"rendered":"<p>The <a href=\"\/depreciation-recapture-calculator\">depreciation recapture calculator<\/a> estimates how much tax you owe when selling investment property \u2014 specifically the 25% recapture tax on depreciation you claimed during ownership. On a $200K rental held for 7 years, you took ~$37,400 in depreciation deductions. When you sell, the IRS taxes that amount at 25% ($9,355) on top of your capital gains tax. Most investors are shocked by this bill because they never modeled it before selling. Here is how to use the depreciation recapture calculator to estimate your total tax liability before you list \u2014 with two worked examples (Cleveland SFR and Indianapolis duplex) and three strategies to reduce or defer the tax.<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_83 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#What_Is_Depreciation_Recapture\" >What Is Depreciation Recapture?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#How_to_Use_the_Depreciation_Recapture_Calculator\" >How to Use the Depreciation Recapture Calculator<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Step_1_Enter_Purchase_Price_and_Land_Value\" >Step 1: Enter Purchase Price and Land Value<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Step_2_Enter_Years_Held\" >Step 2: Enter Years Held<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Step_3_Enter_Capital_Improvements\" >Step 3: Enter Capital Improvements<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Step_4_Enter_Sale_Price_and_Selling_Costs\" >Step 4: Enter Sale Price and Selling Costs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Step_5_Enter_Tax_Rates\" >Step 5: Enter Tax Rates<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Step_6_Read_the_Results\" >Step 6: Read the Results<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Worked_Example_Cleveland_Rental_7_Years\" >Worked Example: Cleveland Rental, 7 Years<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Worked_Example_Indianapolis_Duplex_12_Years\" >Worked Example: Indianapolis Duplex, 12 Years<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#3_Ways_to_Reduce_or_Defer_Depreciation_Recapture\" >3 Ways to Reduce or Defer Depreciation Recapture<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#1_Use_a_1031_Like-Kind_Exchange\" >1. Use a 1031 Like-Kind Exchange<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#2_Hold_Until_Death_Stepped-Up_Basis\" >2. Hold Until Death (Stepped-Up Basis)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#3_Offset_With_Capital_Losses\" >3. Offset With Capital Losses<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#5_Mistakes_When_Estimating_Depreciation_Recapture\" >5 Mistakes When Estimating Depreciation Recapture<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#1_Thinking_You_Can_Avoid_Recapture_by_Not_Claiming_Depreciation\" >1. Thinking You Can Avoid Recapture by Not Claiming Depreciation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#2_Forgetting_Capital_Improvements_Add_to_Depreciable_Basis\" >2. Forgetting Capital Improvements Add to Depreciable Basis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#3_Using_Wrong_Land_Value_Percentage\" >3. Using Wrong Land Value Percentage<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#4_Ignoring_State_Tax_on_Recapture\" >4. Ignoring State Tax on Recapture<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#5_Not_Modeling_the_1031_Exchange_Alternative\" >5. Not Modeling the 1031 Exchange Alternative<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Frequently_Asked_Questions\" >Frequently Asked Questions<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#What_is_the_depreciation_recapture_tax_rate\" >What is the depreciation recapture tax rate?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Can_I_avoid_depreciation_recapture_when_selling_rental_property\" >Can I avoid depreciation recapture when selling rental property?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-24\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#How_do_I_calculate_depreciation_on_rental_property\" >How do I calculate depreciation on rental property?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-25\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Does_depreciation_recapture_apply_to_a_1031_exchange\" >Does depreciation recapture apply to a 1031 exchange?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-26\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#What_happens_if_I_sell_rental_property_at_a_loss\" >What happens if I sell rental property at a loss?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-27\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-recapture-calculator-how-to-use\/#Related_Calculators_and_Guides\" >Related Calculators and Guides<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What_Is_Depreciation_Recapture\"><\/span>What Is Depreciation Recapture?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Every year you own a rental property, the IRS lets you deduct a portion of the building&#8217;s value as depreciation \u2014 reducing your taxable rental income. Residential properties depreciate over 27.5 years using the straight-line method. On a $200K property with 20% land value, you deduct $5,818\/year ($160K building \u00f7 27.5).<\/p>\n<p>The catch: when you sell, the IRS &#8220;recaptures&#8221; that depreciation. All the deductions you took (or <strong>could have taken<\/strong>, even if you didn&#8217;t claim them) are taxed at a maximum rate of 25% under <a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/1250\" target=\"_blank\" rel=\"noopener noreferrer\">Section 1250<\/a> of the Internal Revenue Code. This is separate from and in addition to capital gains tax on your profit.<\/p>\n<p>The depreciation recapture calculator splits your gain into two parts automatically: the recapture portion (taxed at 25%) and the remaining capital gain (taxed at 0%, 15%, or 20% depending on your income). Without this split, you cannot accurately estimate what you will owe at closing.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_to_Use_the_Depreciation_Recapture_Calculator\"><\/span>How to Use the Depreciation Recapture Calculator<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"Step_1_Enter_Purchase_Price_and_Land_Value\"><\/span>Step 1: Enter Purchase Price and Land Value<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Enter the original purchase price of the property. Then enter the land value percentage \u2014 this is critical because <strong>land is not depreciable<\/strong>. Only the building portion generates depreciation and therefore recapture.<\/p>\n<p>Typical land value ranges: 20\u201330% in suburban areas, 10\u201315% in rural areas, 40\u201360% in urban cores where land is expensive. Check your property tax assessment \u2014 most counties break out land vs improvement values. If you are unsure, use 20% as a conservative estimate.<\/p>\n<p>The depreciation recapture calculator shows your depreciable basis immediately: Purchase Price \u2212 Land Value + Capital Improvements. Per <a href=\"https:\/\/www.irs.gov\/taxtopics\/tc703\" target=\"_blank\" rel=\"noopener noreferrer\">IRS Topic 703<\/a>, your basis includes the purchase price plus certain settlement costs and improvements.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Step_2_Enter_Years_Held\"><\/span>Step 2: Enter Years Held<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Enter the number of complete years you owned the property. The calculator computes annual depreciation (depreciable basis \u00f7 27.5) and multiplies by years held to get total depreciation taken. This is the amount subject to 25% recapture.<\/p>\n<p>More years = more depreciation = higher recapture tax but lower adjusted basis. After 27.5 years, depreciation is fully exhausted \u2014 selling at that point means maximum recapture. Use the sensitivity table in the calculator to see how holding 1\u20132 more years changes your tax picture.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Step_3_Enter_Capital_Improvements\"><\/span>Step 3: Enter Capital Improvements<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Capital improvements are permanent additions that increase the property&#8217;s value: new roof, HVAC system, kitchen remodel, added square footage. Do NOT include routine maintenance (painting, fixing leaks, replacing appliances). Improvements increase both your depreciable basis and adjusted basis \u2014 they reduce your taxable gain but increase annual depreciation and eventual recapture.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Step_4_Enter_Sale_Price_and_Selling_Costs\"><\/span>Step 4: Enter Sale Price and Selling Costs<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Enter your expected sale price and total selling costs (agent commission 5\u20136%, title insurance, transfer taxes, attorney fees). The calculator subtracts selling costs from the sale price to determine your net sale proceeds, then calculates total gain as Net Sale Price \u2212 Adjusted Basis.<\/p>\n<p>Estimate selling costs in the <a href=\"\/closing-costs-calculator\">closing costs calculator<\/a>. Typical seller closing costs run 8\u201310% of sale price. For a $250K sale, expect $20,000\u2013$25,000 in total closing costs including agent commission ($12,500\u2013$15,000 at 5\u20136%), title insurance ($1,000\u2013$2,000), transfer taxes (varies by state), and attorney fees. Every dollar of selling costs reduces your taxable gain and therefore your recapture tax.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Step_5_Enter_Tax_Rates\"><\/span>Step 5: Enter Tax Rates<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Three tax rates determine your total bill:<\/p>\n<ul>\n<li><strong>Federal Capital Gains Rate<\/strong> \u2014 0%, 15%, or 20% depending on your taxable income. Most investors fall in the 15% bracket ($47,026\u2013$518,900 for single filers in 2026). The recapture portion is always taxed at 25% regardless of this setting.<\/li>\n<li><strong>State Tax Rate<\/strong> \u2014 your state income tax rate on capital gains. Texas and Florida = 0%. California up to 13.3%. Ohio 2.75%. Enter your applicable rate.<\/li>\n<li><strong>NIIT Rate<\/strong> \u2014 Net Investment Income Tax. Enter 3.8% if your modified adjusted gross income exceeds $200K (single) or $250K (married). Enter 0 if below threshold.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Step_6_Read_the_Results\"><\/span>Step 6: Read the Results<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The depreciation recapture calculator shows:<\/p>\n<ul>\n<li><strong>Total Estimated Tax<\/strong> \u2014 sum of recapture tax + capital gains tax + state tax + NIIT<\/li>\n<li><strong>Net Proceeds<\/strong> \u2014 what you keep after all taxes and selling costs<\/li>\n<li><strong>Tax Breakdown<\/strong> \u2014 each component with percentage and dollar amount<\/li>\n<li><strong>Effective Tax Rate<\/strong> \u2014 total tax \u00f7 total gain. Below 20% is good, 20\u201330% is average, above 30% is high<\/li>\n<li><strong>Recapture as % of Total Tax<\/strong> \u2014 shows how much of your tax bill comes from recapture vs capital gains<\/li>\n<li><strong>Sensitivity Table<\/strong> \u2014 tax at \u00b12 years of holding period<\/li>\n<li><strong>Deal Context<\/strong> \u2014 actionable recommendation based on your numbers<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Worked_Example_Cleveland_Rental_7_Years\"><\/span>Worked Example: Cleveland Rental, 7 Years<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>Scenario:<\/strong> You bought a Cleveland SFR for $180K (25% land), spent $12K on a new roof and HVAC, held for 7 years, and are selling for $250K with $15K in selling costs. You are in the 15% federal CG bracket, Ohio 2.75% state tax, and above the NIIT threshold (3.8%).<\/p>\n<pre><code>Depreciable Basis: $180,000 \u2212 $45,000 (land) + $12,000 (improvements) = $147,000\nAnnual Depreciation: $147,000 \u00f7 27.5 = $5,345\/year\nTotal Depreciation (7 years): $5,345 \u00d7 7 = $37,418\nAdjusted Basis: $180,000 + $12,000 \u2212 $37,418 = $154,582\n\nNet Sale Price: $250,000 \u2212 $15,000 = $235,000\nTotal Gain: $235,000 \u2212 $154,582 = $80,418\n\nTax Breakdown:\n  Depreciation Recapture: $37,418 \u00d7 25% = $9,355\n  Federal Capital Gains:  $43,000 \u00d7 15% = $6,450\n  State Tax (Ohio):       $80,418 \u00d7 2.75% = $2,212\n  NIIT:                   $80,418 \u00d7 3.8% = $3,056\n\nTotal Tax: $21,073\nNet Proceeds: $213,927\nEffective Tax Rate: 26.2%<\/code><\/pre>\n<p><strong>Key insight:<\/strong> Depreciation recapture ($9,355) makes up 44% of your total tax bill. Without modeling this, you would estimate only $11,718 in taxes (capital gains + state + NIIT) \u2014 underestimating by $9,355. That is a $9,355 surprise at closing.<\/p>\n<p>Run this exact scenario in the <a href=\"\/depreciation-recapture-calculator\">depreciation recapture calculator<\/a>. Compare total returns including this tax hit in the <a href=\"\/rental-property-roi-calculator\">ROI calculator<\/a>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Worked_Example_Indianapolis_Duplex_12_Years\"><\/span>Worked Example: Indianapolis Duplex, 12 Years<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>Scenario:<\/strong> Indianapolis duplex, $220K purchase (20% land), $25K improvements, held 12 years, selling for $340K, $20K selling costs. 15% federal CG, Indiana 3.05% state, NIIT 3.8%.<\/p>\n<pre><code>Depreciable Basis: $220,000 \u2212 $44,000 + $25,000 = $201,000\nAnnual Depreciation: $201,000 \u00f7 27.5 = $7,309\/year\nTotal Depreciation (12 years): $7,309 \u00d7 12 = $87,709\nAdjusted Basis: $220,000 + $25,000 \u2212 $87,709 = $157,291\n\nTotal Gain: ($340,000 \u2212 $20,000) \u2212 $157,291 = $162,709\n\nTax Breakdown:\n  Depreciation Recapture: $87,709 \u00d7 25% = $21,927\n  Federal Capital Gains:  $75,000 \u00d7 15% = $11,250\n  State Tax (Indiana):    $162,709 \u00d7 3.05% = $4,963\n  NIIT:                   $162,709 \u00d7 3.8% = $6,183\n\nTotal Tax: $44,323\nEffective Rate: 27.2%<\/code><\/pre>\n<p><strong>$44,323 in taxes on a 12-year hold.<\/strong> Recapture alone is $21,927 \u2014 nearly half the total bill. This is why long-term holders with significant depreciation often use a <a href=\"\/1031-exchange-calculator\">1031 exchange<\/a> to defer both capital gains and recapture tax into a replacement property. See the <a href=\"\/blog\/1031-exchange-real-estate-guide\/\">1031 exchange guide<\/a>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"3_Ways_to_Reduce_or_Defer_Depreciation_Recapture\"><\/span>3 Ways to Reduce or Defer Depreciation Recapture<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"1_Use_a_1031_Like-Kind_Exchange\"><\/span>1. Use a 1031 Like-Kind Exchange<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>A 1031 exchange defers both capital gains AND depreciation recapture tax when you reinvest sale proceeds into another qualifying investment property. You must identify a replacement property within 45 days and close within 180 days. The deferred recapture transfers to the new property \u2014 you do not eliminate it, but you defer it indefinitely. Many investors use serial 1031 exchanges for decades and never pay recapture. Calculate deferral in the <a href=\"\/1031-exchange-calculator\">1031 exchange calculator<\/a>. See <a href=\"\/blog\/1031-exchange-timeline-deadlines-guide\/\">1031 timeline guide<\/a> for deadlines.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_Hold_Until_Death_Stepped-Up_Basis\"><\/span>2. Hold Until Death (Stepped-Up Basis)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>When an investor dies, heirs receive the property at its fair market value (stepped-up basis). All accumulated depreciation and unrealized gains are permanently eliminated \u2014 no recapture tax, no capital gains tax. This is the most powerful tax strategy for investors who plan to hold properties long-term. Per <a href=\"https:\/\/www.irs.gov\/publications\/p551\" target=\"_blank\" rel=\"noopener noreferrer\">IRS Publication 551<\/a>, the heir&#8217;s basis becomes the fair market value at date of death.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"3_Offset_With_Capital_Losses\"><\/span>3. Offset With Capital Losses<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>If you have capital losses from other investments (stocks, failed flips, other properties), those losses can offset your depreciation recapture gain dollar for dollar. A $30,000 stock loss offsets $30,000 of recapture, saving $7,500 in recapture tax. Time your sales strategically \u2014 sell losers in the same tax year you sell a property with large recapture. Track gains and losses in the <a href=\"\/capital-gains-tax-calculator\">capital gains tax calculator<\/a>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"5_Mistakes_When_Estimating_Depreciation_Recapture\"><\/span>5 Mistakes When Estimating Depreciation Recapture<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"1_Thinking_You_Can_Avoid_Recapture_by_Not_Claiming_Depreciation\"><\/span>1. Thinking You Can Avoid Recapture by Not Claiming Depreciation<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The IRS taxes depreciation &#8220;allowed or allowable.&#8221; If you could have claimed depreciation but chose not to, you still owe recapture tax on the amount you <em>should<\/em> have claimed. There is no benefit to skipping depreciation deductions \u2014 you lose the annual tax benefit AND still pay recapture at sale.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_Forgetting_Capital_Improvements_Add_to_Depreciable_Basis\"><\/span>2. Forgetting Capital Improvements Add to Depreciable Basis<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>A $15,000 new roof adds to your depreciable basis. If you held the property for 10 more years after the roof, that is $15,000 \u00f7 27.5 \u00d7 10 = $5,455 in additional depreciation \u2014 and $5,455 more in recapture. But it also increases your adjusted basis, reducing your capital gains portion. Always include improvements in the calculator.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"3_Using_Wrong_Land_Value_Percentage\"><\/span>3. Using Wrong Land Value Percentage<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Land value directly determines depreciable basis. Using 10% land value instead of 30% increases your depreciation by 29% \u2014 and your recapture by the same amount. Use your property tax assessment or a qualified appraisal to determine the accurate land-to-improvement ratio.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"4_Ignoring_State_Tax_on_Recapture\"><\/span>4. Ignoring State Tax on Recapture<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Most states tax depreciation recapture as ordinary income or capital gains. California taxes recapture at up to 13.3%. Ohio at 2.75%. Texas and Florida at 0%. Forgetting state tax on a $40,000 recapture in Georgia (4.99%) costs you an unexpected $1,996 at closing.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"5_Not_Modeling_the_1031_Exchange_Alternative\"><\/span>5. Not Modeling the 1031 Exchange Alternative<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Before paying $20,000+ in recapture tax, model whether a 1031 exchange makes sense. Exchange costs run $2,000\u2013$5,000, but they defer the entire $20,000+ tax bill. If you plan to remain in real estate, the exchange almost always wins financially. Compare in the <a href=\"\/1031-exchange-calculator\">1031 exchange calculator<\/a>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div itemscope itemtype=\"https:\/\/schema.org\/FAQPage\">\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\"><span class=\"ez-toc-section\" id=\"What_is_the_depreciation_recapture_tax_rate\"><\/span>What is the depreciation recapture tax rate?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:block\">\n<p itemprop=\"text\">The maximum federal depreciation recapture tax rate on real estate is 25% under Section 1250. This applies to the portion of your gain attributable to depreciation taken during ownership. The remaining gain above the depreciation amount is taxed at your long-term capital gains rate (0%, 15%, or 20%). If your ordinary income tax rate is below 25%, recapture is taxed at your ordinary rate instead. State taxes and NIIT (3.8%) may apply on top. Use the <a href=\"\/depreciation-recapture-calculator\">depreciation recapture calculator<\/a> to model your exact liability.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\"><span class=\"ez-toc-section\" id=\"Can_I_avoid_depreciation_recapture_when_selling_rental_property\"><\/span>Can I avoid depreciation recapture when selling rental property?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">You cannot eliminate depreciation recapture, but you can defer it. A 1031 like-kind exchange defers both capital gains and recapture tax when you reinvest in another investment property. Alternatively, holding until death provides a stepped-up basis to heirs, permanently eliminating all accumulated depreciation and gains. The IRS taxes depreciation &#8220;allowed or allowable&#8221; \u2014 you cannot avoid recapture by choosing not to claim depreciation deductions during ownership.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\"><span class=\"ez-toc-section\" id=\"How_do_I_calculate_depreciation_on_rental_property\"><\/span>How do I calculate depreciation on rental property?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">Residential rental property is depreciated over 27.5 years using the straight-line method. Calculate depreciable basis as: purchase price minus land value plus capital improvements. Then divide by 27.5 for annual depreciation. Example: $200,000 property with 20% land = $160,000 depreciable basis \u00f7 27.5 = $5,818 per year. Use the <a href=\"\/depreciation-calculator\">depreciation calculator<\/a> for annual deductions and the <a href=\"\/depreciation-recapture-calculator\">depreciation recapture calculator<\/a> to estimate tax at sale.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\"><span class=\"ez-toc-section\" id=\"Does_depreciation_recapture_apply_to_a_1031_exchange\"><\/span>Does depreciation recapture apply to a 1031 exchange?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">A properly executed 1031 exchange defers depreciation recapture tax along with capital gains tax. The deferred recapture carries over to the replacement property \u2014 it is not eliminated. If you eventually sell the replacement property without another 1031 exchange, you will owe recapture on the accumulated depreciation from all exchanged properties. However, serial 1031 exchanges can defer recapture indefinitely. Model tax deferral in the <a href=\"\/1031-exchange-calculator\">1031 exchange calculator<\/a>.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\"><span class=\"ez-toc-section\" id=\"What_happens_if_I_sell_rental_property_at_a_loss\"><\/span>What happens if I sell rental property at a loss?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">If your sale price minus selling costs is less than your adjusted basis, you have a capital loss \u2014 not a gain. There is no depreciation recapture tax when you sell at a loss because recapture only applies to the gain portion. However, your adjusted basis already reflects depreciation taken, so a &#8220;loss&#8221; means the property sold for less than your reduced basis. The loss may be deductible against other income subject to passive activity rules. Run the numbers in the <a href=\"\/depreciation-recapture-calculator\">depreciation recapture calculator<\/a> \u2014 if total gain is negative, no recapture applies.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<h2><span class=\"ez-toc-section\" id=\"Related_Calculators_and_Guides\"><\/span>Related Calculators and Guides<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li><a href=\"\/depreciation-recapture-calculator\"><strong>Depreciation Recapture Calculator<\/strong><\/a> \u2014 Estimate Section 1250 tax at sale<\/li>\n<li><a href=\"\/depreciation-calculator\"><strong>Depreciation Calculator<\/strong><\/a> \u2014 Annual depreciation deduction<\/li>\n<li><a href=\"\/capital-gains-tax-calculator\"><strong>Capital Gains Tax Calculator<\/strong><\/a> \u2014 Full tax on investment property sale<\/li>\n<li><a href=\"\/1031-exchange-calculator\"><strong>1031 Exchange Calculator<\/strong><\/a> \u2014 Tax deferral modeling<\/li>\n<li><a href=\"\/rental-property-roi-calculator\"><strong>ROI Calculator<\/strong><\/a> \u2014 Total return including tax impact<\/li>\n<li><a href=\"\/closing-costs-calculator\"><strong>Closing Costs Calculator<\/strong><\/a> \u2014 Seller closing costs estimate<\/li>\n<li><a href=\"\/fix-and-flip-calculator\"><strong>Fix and Flip Calculator<\/strong><\/a> \u2014 Flip profit after costs<\/li>\n<li><a href=\"\/calculators\"><strong>All 30+ Calculators<\/strong><\/a><\/li>\n<\/ul>\n<p>Blog guides:<\/p>\n<ul>\n<li><a href=\"\/blog\/depreciation-calculator-how-to-use\/\">Depreciation Calculator Guide<\/a><\/li>\n<li><a href=\"\/blog\/real-estate-depreciation-how-it-works\/\">Real Estate Depreciation Explained<\/a><\/li>\n<li><a href=\"\/blog\/1031-exchange-real-estate-guide\/\">1031 Exchange Complete Guide<\/a><\/li>\n<li><a href=\"\/blog\/1031-exchange-timeline-deadlines-guide\/\">1031 Exchange Timeline<\/a><\/li>\n<li><a href=\"\/blog\/avoid-capital-gains-tax-on-investment-property\/\">Avoid Capital Gains Tax Guide<\/a><\/li>\n<li><a href=\"\/blog\/house-flipping-taxes-guide\/\">House Flipping Taxes Guide<\/a><\/li>\n<li><a href=\"\/blog\/capital-gains-tax-calculator-guide\/\">Capital Gains Tax Calculator Guide<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The depreciation recapture calculator estimates how much tax you owe when selling investment property \u2014 specifically the 25% recapture tax on depreciation you claimed during ownership. On a $200K rental&#8230;<\/p>\n","protected":false},"author":1,"featured_media":1025,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1024","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-1"],"_links":{"self":[{"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/posts\/1024","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/comments?post=1024"}],"version-history":[{"count":0,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/posts\/1024\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/media\/1025"}],"wp:attachment":[{"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/media?parent=1024"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/categories?post=1024"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/tags?post=1024"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}