How recapture works
The deduction that comes back at sale
Depreciation shelters your rental income every year you own the property, but it also lowers your basis. When you sell, the IRS taxes the depreciation portion of your gain at up to 25% before long-term capital gains rates touch the rest. The longer you have owned the property, the bigger that slice is.
A worked example with the default numbers: a $1.2M residential rental with $250,000 of land value depreciates about $34,500 a year. After 12 years that is roughly $415,000 of accumulated depreciation, which alone generates about $104,000 of recapture tax on a sale, on top of capital gains on the remaining profit.
A 1031 exchange defers all of it: recapture and capital gain both carry into the replacement property. That is why landlords leaving active management trade rentals into net lease rather than selling outright, and why the search for replacement property is worth doing well. See how to find 1031 exchange properties or browse live off-market inventory.
Defer the whole bill instead
Post My ExchangeFAQ
Frequently asked questions
Q1What rate is depreciation recapture taxed at?
For real estate, the depreciation you have taken is treated as unrecaptured section 1250 gain and taxed at up to 25%, higher than the long-term capital gains rate on the rest of your profit. It applies before capital gains in the tax ordering.
Q2Do I owe recapture if I never claimed depreciation?
Yes. The IRS applies recapture on depreciation that was "allowed or allowable," meaning it taxes you as if you took the deduction every year even if you skipped it. If you have unclaimed depreciation, talk to a CPA about correcting it before you sell.
Q3Does a 1031 exchange defer depreciation recapture?
Yes. A fully deferred exchange into like-kind real property defers both the capital gain and the recapture. The accumulated depreciation carries into the replacement property and comes due only if you eventually sell outside a 1031.
Q4How is accumulated depreciation estimated here?
Straight line over 27.5 years for residential rental or 39 years for commercial property, applied to your building basis (purchase price minus land value), capped at the building basis. Your actual depreciation schedule from your tax returns is the authoritative number.
More 1031 tools
Keep planning your exchange
1031 exchange calculator
The full deferral model: capital gain, taxable boot, and estimated federal tax deferred.
45/180-day deadline calculator
Your exact identification and closing dates from the day your sale closes.
1031 boot calculator
Cash boot, mortgage boot, and what it takes to fully defer your gain.
This calculator is for planning, not tax advice. Your actual depreciation schedule, cost segregation, and state taxes can change the result materially; confirm with a CPA.