Depreciation Recapture Calculator
Estimate the depreciation recapture tax owed when you sell a rental or investment property. Use it before closing to avoid surprise IRS bills on accumulated depreciation deductions.
About this calculator
When you own rental property, the IRS lets you deduct depreciation each year — 1/27.5 of the building cost for residential property or 1/39 for commercial. When you sell, the IRS "recaptures" those deductions and taxes them at up to 25%. The formula first calculates total accumulated depreciation: (purchasePrice + improvements) / recoveryPeriod × yearsOwned. It then caps that amount at your actual gain (salePrice − purchasePrice), because you can't recapture more than you gained. Finally, it applies the 25% recapture rate: Tax = min(accumulatedDepreciation, gain) × 0.25. This tax is separate from — and in addition to — any long-term capital gains tax owed on remaining profit above the original purchase price.
How to use
Suppose you bought a residential rental for $200,000, spent $20,000 on improvements, owned it for 8 years, and sold it for $280,000. Annual depreciation = ($200,000 + $20,000) / 27.5 = $8,000. Accumulated depreciation over 8 years = $8,000 × 8 = $64,000. Your gain = $280,000 − $200,000 = $80,000. Since $64,000 < $80,000, the full $64,000 is subject to recapture. Recapture tax = $64,000 × 0.25 = $16,000 owed to the IRS at sale.
Frequently asked questions
What is depreciation recapture and how does it differ from capital gains tax?
Depreciation recapture is the IRS mechanism that taxes back the depreciation deductions you claimed during ownership of a rental property. While long-term capital gains are typically taxed at 0%, 15%, or 20% depending on your income, depreciation recapture is taxed at a flat maximum rate of 25%. They apply to different portions of your profit: recapture applies to gains attributable to depreciation taken, while capital gains tax applies to any additional appreciation above your original purchase price. Both taxes can be owed in the same year you sell the property.
How can I reduce or defer depreciation recapture tax when selling rental property?
The most common strategy is a 1031 like-kind exchange, which lets you defer both capital gains and depreciation recapture by rolling proceeds into a new investment property within strict IRS deadlines. Investing the gain in a Qualified Opportunity Zone fund is another deferral option. Installment sales spread the recapture tax over multiple years, which may reduce your effective rate. You cannot permanently eliminate recapture on a standard sale — only defer it.
Does depreciation recapture apply to your primary residence or only investment property?
Depreciation recapture applies only when you have actually claimed depreciation deductions, which is generally limited to rental, investment, or business-use property. If you never rented or used your home for business, no depreciation was taken and no recapture applies. However, if you converted a primary residence to a rental and claimed depreciation before selling, that accumulated depreciation is fully subject to recapture at 25%, even if the rest of the gain qualifies for the primary-residence exclusion under Section 121.