Recapture Tax Calculator

Enter your sale price, original purchase price, depreciation claimed, and tax rates to calculate the Section 1250 depreciation recapture tax and capital gains tax owed on a property sale.

Created by Luis GonzalezLast updated: May 9, 2026

How to Use This Calculator

1
Enter the Sale Price
Input the final sale price of your investment property, for example, $350,000.
2
Specify Original Purchase Price
Provide the initial cost at which you acquired the property, such as $250,000.
3
Input Total Depreciation Claimed
Enter the cumulative amount of depreciation you've deducted over the property's ownership period, for instance, $60,000.
4
Set Capital Gains Tax Rate
Choose your long-term capital gains tax rate, which is typically 0%, 15%, or 20% for most taxpayers in 2025.
5
Set Depreciation Recapture Tax Rate
Enter the unrecaptured Section 1250 gain rate, which is capped at 25% for federal purposes.
6
Calculate Your Tax Liability
View your total tax obligation, including both depreciation recapture and capital gains, along with net proceeds.

Example Calculation

An investor is selling a property for $350,000 that was purchased for $250,000, having claimed $60,000 in depreciation. They face a 15% capital gains tax rate and a 25% depreciation recapture tax rate.

Sale Price ($)

350,000

Original Purchase Price ($)

250,000

Total Depreciation Claimed ($)

60,000

Capital Gains Tax Rate (%)

Depreciation Recapture Tax Rate (%)

Results

$30,000.00

Tips

Understand Adjusted Basis

Your adjusted cost basis is your original purchase price minus all depreciation claimed. A lower adjusted basis means a higher taxable gain, so always keep accurate records of improvements and depreciation.

Consider a 1031 Exchange

To defer depreciation recapture and capital gains taxes, consider a 1031 exchange (like-kind exchange) by reinvesting the proceeds into a similar investment property. This must be initiated within 45 days of sale and completed within 180 days.

Consult a Tax Professional

Real estate tax rules are complex and can vary by state. Always consult a qualified tax advisor for personalized guidance, especially when dealing with significant property sales or multiple depreciation schedules.

Navigating Real Estate Sales: Understanding Recapture Tax Implications

The Recapture Tax Calculator is an essential tool for investors selling depreciated real estate, helping to determine the total tax liability from both depreciation recapture and capital gains. This calculation is crucial for accurate financial planning, as it directly impacts your net proceeds from a property sale. For example, failing to account for a $15,000 depreciation recapture tax on a $300,000 property sale can significantly alter your projected profit and investment returns in 2025.

Why Depreciation Recapture Impacts Your Investment Property Sale

Depreciation recapture is a critical consideration for any real estate investor because it clawbacks a portion of the tax benefits received during property ownership. While depreciating an investment property annually reduces taxable income, the IRS requires a portion of that depreciation to be "recaptured" as taxable income upon sale. This ensures that taxpayers don't benefit twice—once from the deduction and again from a lower capital gains tax rate on the portion of gain created by those deductions. Misunderstanding this can lead to an unexpected tax bill, eroding investment returns.

The IRS Section 1250 Logic Behind Recapture Tax

The Recapture Tax Calculator applies the rules outlined in IRS Section 1250, which governs the taxation of unrecaptured Section 1250 gain (depreciation recapture) on the sale of real property. The process involves several steps:

Adjusted Cost Basis: Your original purchase price is reduced by the total depreciation claimed over the years.
```
adjusted basis = original purchase price - total depreciation claimed
```
Total Gain: This is the difference between your sale price and the adjusted basis.
```
total gain = sale price - adjusted basis
```
Depreciation Recapture Amount: This is the lesser of the total depreciation claimed or the total gain, taxed at a federal maximum of 25%.
```
recapture amount = MIN(total depreciation claimed, total gain)
recapture tax = recapture amount × depreciation recapture tax rate
```
Capital Gain: Any remaining gain above your original purchase price is taxed at your long-term capital gains rate.
```
capital gain = sale price - original purchase price
capital gains tax = capital gain × capital gains tax rate
```
Your Total Tax Liability is the sum of the depreciation recapture tax and the capital gains tax.

💡 Understanding your total tax obligations is essential for financial planning. For other deductions impacting your taxable income, refer to our Health Insurance Premium Deduction Calculator.

Calculating Property Tax Liability: A Detailed Scenario

Consider an investor selling a commercial property for $350,000. They originally purchased it for $250,000 and have claimed $60,000 in depreciation deductions over the ownership period. Their long-term capital gains tax rate is 15%, and the depreciation recapture tax rate is 25%.

Calculate Adjusted Cost Basis: $250,000 (original price) - $60,000 (depreciation) = $190,000.
Calculate Total Gain: $350,000 (sale price) - $190,000 (adjusted basis) = $160,000.
Calculate Depreciation Recapture Tax: The recapture amount is the lesser of $60,000 (depreciation claimed) or $160,000 (total gain), which is $60,000. This is taxed at 25%: $60,000 × 0.25 = $15,000.
Calculate Capital Gains Tax: The capital gain is $350,000 (sale price) - $250,000 (original price) = $100,000. This is taxed at 15%: $100,000 × 0.15 = $15,000.
Total Tax Liability: $15,000 (recapture tax) + $15,000 (capital gains tax) = $30,000.

The investor's net proceeds after tax would be $350,000 - $30,000 = $320,000.

💡 For broader tax planning strategies, especially if you're exploring ways to optimize income across different entities, our Income Splitting Tax Calculator offers insights into other complex tax scenarios.

Real Estate Tax Planning: Minimizing Your Recapture Exposure

Minimizing depreciation recapture exposure is a key component of real estate tax planning. One common strategy is to hold properties for longer periods, as the benefits of depreciation deductions accumulate, but the recapture rate remains capped at 25%. Another approach involves identifying opportunities for a 1031 exchange, which allows investors to defer capital gains and depreciation recapture taxes by reinvesting the proceeds from a sale into a "like-kind" property. However, specific rules apply, such as identifying a replacement property within 45 days of the sale and closing within 180 days. For investors with significant real estate portfolios, understanding these nuances can lead to substantial tax savings over time.

Regulatory Context for Depreciation Recapture (IRS Section 1250)

Depreciation recapture on real property is primarily governed by IRS Section 1250, which specifically addresses "gain from dispositions of certain depreciable realty." Unlike Section 1245, which applies to personal property and recaptures depreciation at ordinary income rates, Section 1250 applies to real property and recaptures only the excess of accelerated depreciation over straight-line depreciation at ordinary rates. However, due to changes in tax law, most depreciation on real property is now straight-line, meaning the entire amount of depreciation claimed is typically subject to the "unrecaptured Section 1250 gain" rate, which is capped at 25%. This 25% rate is distinct from, and usually higher than, the long-term capital gains rates (0%, 15%, or 20% for most taxpayers in 2025), making it a significant factor in property disposition planning.

Frequently Asked Questions

What is depreciation recapture tax?

Depreciation recapture tax is a levy by the IRS on the gain realized from the sale of depreciated property that is attributable to depreciation deductions previously taken. Under IRS Section 1250, any gain from the sale of real property up to the amount of depreciation previously claimed is taxed at a maximum rate of 25%, distinct from the long-term capital gains rates. This prevents taxpayers from deducting depreciation at their ordinary income rate and then selling the asset, effectively converting ordinary income into lower-taxed capital gains.

How does depreciation affect my property's cost basis?

Depreciation reduces your property's cost basis, known as the adjusted basis, which is used to calculate capital gains or losses upon sale. For example, if you bought a property for $200,000 and claimed $50,000 in depreciation, your adjusted basis becomes $150,000. This lower basis means a higher taxable gain when you sell, as the gain is calculated from the sale price minus the adjusted basis, not the original purchase price.

What is the difference between depreciation recapture and capital gains tax?

Depreciation recapture tax applies specifically to the portion of your gain that equals the depreciation you've claimed, taxed at up to 25% under Section 1250. Capital gains tax, on the other hand, applies to any remaining profit above your original purchase price (after accounting for depreciation recapture), taxed at your long-term capital gains rate (0%, 15%, or 20% for most taxpayers in 2025). Both are components of the total tax liability when selling investment property.