Depreciation Recapture Calculator for Rental, Commercial and Farm Property
See what depreciation recapture will cost when you sell: §1245, unrecaptured §1250, the 3.8% surtax and your state, layer by layer, then what an installment sale, a 1031 or an Opportunity Zone fund does to it.
For owners of rental houses, apartment buildings, commercial property and farm or ranch buildings who are getting ready to sell. Put in what you paid, what you have depreciated and what you expect to sell for. You get the recapture split into its tax layers (§1245 ordinary, unrecaptured §1250 at up to 25%, and the rest at capital gain rates), the 3.8% surtax, your state's tax, and what each way to reduce or spread it does to your numbers. Free, no sign-up to see your result.
Is rental property §1245 or §1250?
Both, usually. The building and its structural parts are §1250 property. Anything that is not part of the structure is §1245 property, and a cost segregation study moves a slice of the building into that bucket on purpose. The label matters because the two are taxed differently when you sell.
| What you depreciated | Type | How the recapture is taxed |
|---|---|---|
| Building, roof, HVAC, plumbing, wiring (27.5 or 39-year) | §1250 | Unrecaptured §1250 gain: your ordinary rate, capped at 25% federal |
| Appliances, carpet, furniture, equipment (5 or 7-year) | §1245 | Ordinary income, up to 37%, all in the year of sale |
| Paving, fencing, landscaping (15-year land improvements) | §1250 | Straight-line part at up to 25%; any faster write-off (bonus, 150%) above straight line is ordinary |
| Improvements expensed under §179 | Treated as §1245 | Ordinary income |
| Land | Not depreciable | Plain capital gain at 0, 15 or 20% |
Depreciation recapture tax rates in 2026
| Layer of the gain | Federal rate | Plus |
|---|---|---|
| §1245 recapture | 10% to 37% (ordinary) | 3.8% NIIT if passive; state tax |
| Unrecaptured §1250 gain | Your ordinary rate, never more than 25% | 3.8% NIIT if passive; state tax |
| Rest of the gain | 0%, 15% or 20% | 3.8% NIIT if passive; state tax |
California taxes every layer as ordinary income, up to 13.3% with the 1% surcharge above $1 million. The 3.8% net investment income tax applies to the gain to the extent your total income is above $250,000 joint or $200,000 single.
Farm and ranch property
Farm buildings are usually 20-year property depreciated at 150% declining balance, and single-purpose structures like milking parlors or greenhouses are §1245 property. Use the "I know the number" option with the figures from your depreciation schedule, and put single-purpose structures and equipment in the §1245 box. Farmland itself is never depreciated, so most of a farm sale is often plain capital gain. Farm property is also exempt from the §453A interest charge on installment notes over $5 million, which makes spreading a large farm sale simpler than spreading a commercial one.
Three inputs that change the recapture bill
The 25% is a ceiling, not a rate. Unrecaptured §1250 gain stacks on top of your other income, fills the 22% and 24% brackets first and stops at 25%. A retired seller with $60,000 of other income pays less than 25% on part of that layer; a seller with $600,000 of income pays the full 25%. The same building produces a different bill for two different owners, which is why the calculator asks about your income.
Basis drops by what you were allowed to deduct. Under §1016(a)(2) your basis is reduced by depreciation allowed or allowable, so skipping the deduction does not skip the recapture. It only means you paid full tax on income you could have sheltered.
The land share changes the answer. Land is not depreciated, so the split between land and building at purchase sets how much depreciation you have to recapture. Many generic calculators assume about 20% land, which can overstate accumulated depreciation badly in high-value areas. Your county assessor publishes the land and improvement split for free on the parcel detail page; use that number in the "Land value at purchase" box above before trusting any estimate.
Go deeper: depreciation recapture, Section 1245 vs 1250, with a calculator on Big Sale Tax.
Depreciation recapture questions
What is the depreciation recapture tax rate?
On a building it is your ordinary income rate, capped at 25% federal (unrecaptured §1250 gain). On §1245 property, such as cost segregation items and equipment, it is ordinary income at up to 37%. Either one can add the 3.8% net investment income tax and your state's tax.
Is depreciation recapture taxed as ordinary income?
§1245 recapture is ordinary income. Unrecaptured §1250 gain is technically capital gain with its own rate: your ordinary rate when that is below 25%, and 25% when it is above.
Is depreciation recapture subject to the 3.8% NIIT?
For a rental you do not actively run as a real estate professional, yes: the whole gain, recapture included, is net investment income once your income passes $250,000 joint or $200,000 single. Real estate professionals who materially participate and active farmers generally do not owe it on the sale.
Do I have to pay back depreciation if I never claimed it?
Yes. Your basis drops by the depreciation you were allowed to take, whether you took it or not (§1016(a)(2)). If you missed it, a change in accounting method (Form 3115) can usually claim the missed amount before you sell, so you at least get the deduction you are being taxed on.
Can I avoid depreciation recapture?
You can defer it with a 1031 exchange, spread it with an installment sale, defer the capital-gain part with an Opportunity Zone fund, offset it with suspended passive losses, or have it disappear through a step-up in basis at death. Each fits a different seller; the calculator above prices the ones that apply to your numbers.
What happens to depreciation recapture when I die?
Under current law your heirs receive the property with a basis stepped up to its value at your death (§1014). The depreciation and the gain are never taxed. Property you give away during your life keeps your basis, so the recapture goes with it.
How is depreciation recapture taxed in an installment sale?
§1245 recapture is all taxed in the year of sale, even if you receive little cash that year (§453(i)). Unrecaptured §1250 gain is recognized first out of each payment (Reg. §1.453-12), so the early payments carry the 25% layer and the later ones carry the lower capital gain rates. That is why the down payment should be big enough to pay year-one tax.
How do you calculate depreciation on a rental property?
Take the building's cost (purchase price minus land, plus improvements) and divide by 27.5 years for residential or 39 years for commercial, straight line, with a half month in the month you place it in service and the month you sell.
Related: unrecaptured §1250 gain calculator · cost segregation and recapture · recapture in an installment sale · 1031 boot calculator · Opportunity Zone funds
Educational estimate only, not tax, legal or investment advice. Figures use 2026 federal brackets (Rev. Proc. 2025-32), the state you choose, the 3.8% net investment income tax and the alternative minimum tax; they do not include local taxes, credits, itemized deductions or interest on a seller note. Your CPA should confirm any number before you act. No result here is a promise of savings. Hans Goldstein is a licensed insurance agent (CA Insurance License #4273294, NPN 20602398) and may discuss insurance products, including annuities. Questions: 213-414-2808.
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