Depreciation Recapture Calculator
Depreciation Recapture Calculator 2025
Calculate Section 1250 & 1245 recapture tax on rental property, commercial real estate, and business equipment
Property Details
Section 1250 - Max 25% recapture rate
Land is not depreciable
Sale Details
Commissions, closing costs, etc.
Your Tax Situation
Affects capital gains rate & NIIT
Depreciation Summary
Depreciable Basis
$0
Annual Depreciation
$0
Total Depreciation (10 yrs)
$0
Adjusted Basis
$0
Tax Liability Breakdown
Sale price - Adjusted basis
$0 @ 25%
$0 @ 0%
Effective rate on gain: 0.0%
Net Proceeds
After all taxes and selling costs
What is Depreciation Recapture?
Depreciation recapture is the IRS requirement to "recapture" (pay back) the tax benefits you received from depreciation deductions when you sell a business asset for more than its adjusted basis. The depreciation you claimed reduced your taxable income over the years, and now the IRS wants its share when you profit from the sale.
Section 1250 vs Section 1245 Recapture
The tax treatment depends on the type of property:
- Section 1250 (Real Estate): Residential and commercial property depreciated using straight-line method. The "unrecaptured Section 1250 gain" is taxed at a maximum rate of 25% - more favorable than ordinary income rates.
- Section 1245 (Personal Property): Equipment, vehicles, furniture, and machinery. ALL depreciation is recaptured as ordinary income, taxed at your marginal rate (10-37%).
How to Calculate Depreciation Recapture Tax
The calculation involves several steps:
- Calculate Depreciable Basis: Purchase price minus land value, plus capital improvements.
- Determine Total Depreciation: Annual depreciation × years owned (capped at depreciable basis).
- Find Adjusted Basis: Original cost + improvements - accumulated depreciation.
- Calculate Total Gain: Net sale price - adjusted basis.
- Split the Gain: Recapture portion (up to depreciation claimed) taxed at 25% (Section 1250) or ordinary rates (Section 1245). Remaining gain taxed as long-term capital gains (0%, 15%, or 20%).
Pro Tip: You can defer depreciation recapture tax indefinitely using a 1031 Like-Kind Exchange. This allows you to roll the proceeds into a new investment property without triggering immediate tax liability.
2025 Tax Rates for Depreciation Recapture
Understanding the applicable tax rates is crucial for planning:
- Section 1250 Unrecaptured Gain: Maximum 25% (applies to straight-line depreciation on real estate)
- Section 1245 Recapture: Ordinary income rates (10-37% based on your tax bracket)
- Long-Term Capital Gains: 0%, 15%, or 20% based on taxable income
- NIIT: Additional 3.8% on investment income if MAGI exceeds $200K (single) or $250K (married)
Strategies to Minimize Depreciation Recapture Tax
Several legal strategies can help reduce or defer your tax liability:
- 1031 Exchange: Defer all taxes by reinvesting in like-kind property within 180 days.
- Installment Sale: Spread the gain over multiple years to stay in lower tax brackets.
- Opportunity Zone Investment: Invest gains in a Qualified Opportunity Zone fund for potential tax reduction.
- Charitable Remainder Trust: Donate the property and receive an income stream while avoiding immediate capital gains.
- Hold Until Death: Heirs receive a stepped-up basis, eliminating all deferred recapture.