Section 1250 recapture
Depreciation recapture
Depreciation recapture is the tax owed at sale on the depreciation you deducted along the way. For residential rental property it is unrecaptured Section 1250 gain, taxed at a maximum federal rate of 25% — higher than the long-term capital gains rate that applies to the rest of the profit.
Recapture tax = accumulated depreciation × 25% (maximum federal rate)
Worked example
Ten full years at about $8,122.18 is about $81,222 of accumulated depreciation, and up to $20,305 of federal recapture tax on sale.
Rental metric examples use the default $265,000 duplex at $2,650 monthly rent, 25% down and 6.75% over 30 years. Strategy and tax examples use the assumptions stated above rather than that rental deal.
The mistake to avoid
Where this is calculated
The rental property depreciation calculator computes this from your own numbers and shows the arithmetic expanded. 27.5-year straight line with the IRS mid-month convention, the annual tax shield, and recapture at sale.
Related terms
- Capital expenditureCapital expenditure is money spent on components with a useful life longer than a year — roof, furnace, windows, a full kitchen.
- Cost basisCost basis starts with purchase price, capitalised closing costs and improvements.
- 1031 exchangeA 1031 exchange defers capital gains tax and depreciation recapture by rolling the proceeds of an investment-property sale into another investment property.
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