Depreciation Recapture

tax

Also known as: depreciation recapture, unrecaptured Section 1250 gain

Updated · Written and reviewed by Konstantin Iakovlev

Detailed explanation

For rental real estate, unrecaptured Section 1250 gain is capped at 25% federal — even for high-bracket sellers. This affects net proceeds materially: a $200K depreciation taken over 15 years of rental ownership creates $50K of recapture tax even if the property sells for what you paid. Ordinary depreciation (Section 1245) on equipment is recaptured at your marginal rate. 1031 exchange defers recapture along with capital gain. Cost-segregation studies that accelerate depreciation upfront create more recapture at sale — useful for long holds, not for flips.

Use these calculators to apply this concept

Related tax terms

Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI) is your total gross income minus specific "above-the-line" deductions like contributions to ...

Modified Adjusted Gross Income (MAGI)

Modified Adjusted Gross Income (MAGI) is your AGI plus certain deductions added back, used to determine eligibility for ...

Standard Deduction

The standard deduction is a fixed dollar amount that reduces your taxable income. For 2026, it's $16,100 single, $32,200...

Marginal Tax Rate

Your marginal tax rate is the rate applied to your last dollar of taxable income — the bracket your highest-earning doll...

Effective Tax Rate

Your effective tax rate is your total tax liability divided by your total income — the blended average across all tax br...

← Back to glossary · Suggest an addition: [email protected]