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Depreciation Recapture Calculator (Real Estate)

Estimate depreciation recapture tax (Section 1250), capital gains tax, and net sale proceeds when selling investment property.

This calculator is a planning tool. It does not determine your actual tax liability, correct federal bracket, state-specific tax treatment, or 1031 exchange eligibility.

Reviewed by ArvCalc Editorial Team

Last updated: August 2026

This calculator and guide are designed for educational depreciation recapture tax planning. It estimates depreciable basis, annual depreciation, total depreciation taken, adjusted basis, total gain, recapture tax at 25%, capital gains tax, NIIT, state tax, total tax, and net proceeds under user-entered assumptions. Results are planning estimates only. They are not tax advice, legal advice, CPA advice, IRS guidance, state tax guidance, investment advice, or a substitute for professional tax review.

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Total Tax Est.
—fill in fields below

What do you want to calculate?

Enter property details, holding period, sale price, and tax rates to estimate depreciation recapture tax, capital gains tax, and net proceeds.

Property Details

$
%

Land is not depreciable. Only the building portion qualifies for depreciation. Typical range: 20-30%.

$

Additions, renovations, and permanent improvements increase your depreciable basis and adjusted basis.

Sale Details

$
$

Agent commissions, title fees, and other costs reduce your net sale price.

Tax Rates

%

Applies to the remaining capital gain after depreciation recapture. Typical long-term rates: 0%, 15%, or 20%.

%

State tax is simplified as a flat rate on total gain. Actual state treatment varies.

%

Enter 3.8 if your income exceeds the NIIT threshold. Enter 0 if it does not. Simplified upper-bound estimate.

Enter values above

Purchase price, years held, and sale price required

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Overview

When you sell investment real estate, the IRS requires you to "recapture" the depreciation you claimed during ownership. This recaptured depreciation is taxed at a maximum federal rate of 25% under Section 1250 of the Internal Revenue Code, regardless of your ordinary income tax bracket.

Depreciation recapture is separate from capital gains tax. When you sell, your total gain is split into two parts: the depreciation recapture portion (taxed at up to 25%) and the remaining capital gain (taxed at your long-term capital gains rate of 0%, 15%, or 20%). Understanding this split is critical for accurate tax planning.

This calculator automates the depreciation calculation using the standard 27.5-year straight-line method for residential rental property. It computes your depreciable basis, total depreciation taken, adjusted basis, total gain, and then splits the tax between recapture and capital gains components.

Even if you never actually claimed depreciation deductions on your tax returns, the IRS taxes you as if you did. The tax code applies to depreciation "allowed or allowable," meaning you cannot avoid recapture by simply not claiming the deduction.

How to Use the Depreciation Recapture Calculator

  1. 1
    Enter purchase price and land value percentage. The purchase price is what you originally paid (see IRS Topic 703: Basis of Assets). Land value percentage represents the non-depreciable portion (typically 20-30%). Only the building value is depreciable.
  2. 2
    Enter years held. The calculator uses 27.5-year straight-line depreciation for residential property. More years = more depreciation taken = higher recapture tax but lower adjusted basis.
  3. 3
    Enter sale price and selling costs. Sale price is the expected gross sale price. Selling costs (agent commissions, closing costs) reduce your net proceeds and total gain.
  4. 4
    Enter tax rate assumptions. Federal capital gains rate (0/15/20%), state tax rate, and NIIT rate if applicable. Recapture is always taxed at 25% regardless of these inputs.
  5. 5
    Review the tax breakdown. See how your total tax splits between recapture tax and capital gains tax. Use the sensitivity table to see how different holding periods affect your tax liability.

Pro Tips

  • Check your county assessor's website for the land-to-building ratio if unsure about land value percentage.
  • Capital improvements increase your depreciable basis and reduce overall gain.
  • The 27.5-year schedule means full depreciation takes 27.5 years. Selling earlier means less recapture but a higher adjusted basis.
  • Use the sensitivity table to see how holding 1-2 more years changes your tax picture.
  • Consider a 1031 exchange to defer both recapture and capital gains tax entirely.

Formula — Step by Step

The depreciation recapture tax calculation involves six sequential steps, per IRS Publication 544 (Sales and Other Dispositions of Assets). Each step builds on the previous one.

Step 1 — Depreciable Basis
Land Value = Purchase Price × Land Value %
Depreciable Basis = Purchase Price − Land Value + Capital Improvements
Step 2 — Total Depreciation
Annual Depreciation = Depreciable Basis ÷ 27.5
Total Depreciation = Annual Depreciation × Years Held
(capped at Depreciable Basis)
Step 3 — Adjusted Basis & Total Gain
Adjusted Basis = Purchase Price + Capital Improvements − Total Depreciation
Total Gain = Sale Price − Selling Costs − Adjusted Basis
Step 4 — Gain Split
Depreciation Recapture = min(Total Depreciation, Total Gain)
Remaining Capital Gain = Total Gain − Depreciation Recapture
Step 5 — Tax Calculation
Recapture Tax = Depreciation Recapture × 25%
Capital Gains Tax = Remaining CG × Federal CG Rate
NIIT = Total Gain × NIIT Rate
State Tax = Total Gain × State Rate
Total Tax = Recapture Tax + CG Tax + NIIT + State Tax
Step 6 — Net Proceeds
Net Proceeds = Sale Price − Selling Costs − Total Tax

What Is Section 1250 (Depreciation Recapture)?

Section 1250 of the Internal Revenue Code governs how depreciation on real property is recaptured when the property is sold. Per IRS Publication 946, residential rental properties are depreciated using the straight-line method over 27.5 years. When you sell, the depreciation you claimed (or could have claimed) becomes "unrecaptured Section 1250 gain."

This unrecaptured gain is taxed at a maximum federal rate of 25%. This is higher than the typical long-term capital gains rates of 0%, 15%, or 20%, but lower than ordinary income rates. The 25% rate is a ceiling; if your ordinary income tax rate is lower than 25%, the recapture is taxed at your ordinary rate instead.

Recapture Rate

Up to 25%

On depreciation taken

LTCG Rate

0% / 15% / 20%

On remaining gain

Depreciation Period

27.5 Years

Residential rental

The key distinction is between Section 1245 and Section 1250 property. Section 1245 covers personal property (equipment, appliances) where recapture is taxed as ordinary income. Section 1250 covers real property (buildings) where the "unrecaptured" gain from straight-line depreciation gets the favorable 25% maximum rate.

Important: even if you did not claim depreciation deductions, the IRS treats you as if you did. The tax code applies to depreciation "allowed or allowable," so there is no benefit to skipping depreciation deductions during ownership.

Worked Example — $200K Property, 7 Years

Scenario: Residential rental purchased for $200,000 with 20% land value, held 7 years, sold for $280,000

  • Land Value: $200,000 × 20% = $40,000
  • Depreciable Basis: $200,000 − $40,000 = $160,000
  • Annual Depreciation: $160,000 ÷ 27.5 = $5,818/year
  • Total Depreciation (7 years): $5,818 × 7 = $40,727
  • Adjusted Basis: $200,000 − $40,727 = $159,273
  • Total Gain: $280,000 − $159,273 = $120,727
  • Depreciation Recapture: min($40,727, $120,727) = $40,727
  • Remaining Capital Gain: $120,727 − $40,727 = $80,000
  • Recapture Tax (25%): $40,727 × 25% = $10,182
  • Federal CG Tax (15%): $80,000 × 15% = $12,000
  • Total Tax: $10,182 + $12,000 = $22,182
  • Net Proceeds: $280,000 − $22,182 = $257,818
  • Effective Tax Rate: $22,182 ÷ $120,727 = 18.4%

Without understanding recapture, an investor might expect tax of only $120,727 × 15% = $18,109. The actual estimated tax is $22,182 because $40,727 of the gain is taxed at the higher 25% recapture rate.

Common Mistakes When Estimating Depreciation Recapture

  1. 1. Thinking you can avoid recapture by not claiming depreciation

    The IRS taxes depreciation "allowed or allowable." Whether you claimed it or not, you owe recapture tax on the depreciation you could have taken. Always claim depreciation during ownership to get the tax benefit you will be taxed on regardless.

  2. 2. Forgetting to subtract land value from depreciable basis

    Land is not depreciable. If you depreciate the full purchase price including land, you overstate depreciation and will face a larger recapture amount. Use county assessor records or an appraisal to determine the land-to-building ratio.

  3. 3. Applying the wrong depreciation schedule

    Residential rental property uses 27.5-year straight-line depreciation. Commercial property uses 39 years. Mixing these up materially changes the recapture amount. This calculator uses the 27.5-year residential schedule.

  4. 4. Ignoring capital improvements in basis calculations

    Capital improvements (new roof, HVAC, additions) increase both your depreciable basis and your adjusted basis at sale. Forgetting them understates your basis and overstates your taxable gain.

  5. 5. Confusing recapture tax with capital gains tax

    Recapture tax (25% max) and capital gains tax (0/15/20%) are separate components. Your total gain is split: the depreciation portion gets the 25% rate, and only the remaining gain gets the lower capital gains rate. Many investors assume the entire gain is taxed at one rate.

Frequently Asked Questions

Disclaimer

This calculator and its outputs are for educational and informational purposes only. Results are planning estimates based on user-entered assumptions and should not be treated as tax advice, legal advice, CPA conclusions, IRS guidance, state tax guidance, or investment advice. The 25% recapture rate is a simplified maximum; actual rates depend on your income bracket. Tax rules, state treatment, federal brackets, NIIT, Section 1250, and entity-specific rules vary. Consult qualified professionals before acting.