What Is Depreciation Recapture?
Depreciation recapture is the tax you pay, when you sell a rental, on the depreciation you deducted while you owned it.
Every year you own a rental you deduct depreciation, which reduces your taxable income. It also reduces your basis — the figure your eventual gain is measured against. Lower basis, bigger gain.
When you sell, the slice of gain created by those deductions is separated out and taxed at up to 25%, rather than at the lower rate that applies to the rest of the gain.
It isn't a penalty. It's the deduction being settled up — you had the benefit each year, and the sale is where the balance is struck.
An example
Worked example — illustrative figures
You bought for $300,000 and deducted $60,000 of depreciation over the years. Your basis is now $240,000.
Sell at $400,000 and your gain is $160,000, not the $100,000 you'd get from subtracting what you paid. That extra $60,000 is the depreciation coming back — and it's the slice taxed at the recapture rate.
Two things people find surprising
You owe it even if you never claimed the depreciation. The calculation uses the depreciation you were entitled to take, not what you actually took. Skipping the deduction doesn't avoid the bill — it just means you never got the benefit.
Not all of it is capped at the same rate. Depreciation on the building is capped. Anything accelerated onto short-life components by a cost segregation study comes back at your ordinary income rate, which is higher.
Where to read more
The full picture, including what changes your own number, is in what depreciation recapture costs when you sell. To see a figure for your property, our calculator breaks it into layers.
Informational purposes only — estimates for discussion, not tax, legal, or financial advice. No professional-client relationship is created. Consult a qualified CPA about your situation.