Unrecaptured §1250 Gain Calculator
Every dollar of depreciation you wrote off on a rental or commercial building comes back when you sell — as unrecaptured section 1250 gain, taxed at your ordinary rate up to a 25% federal ceiling, plus state tax and the 3.8% NIIT. It is buried inside what your broker calls "the capital gain," and most owners see it for the first time on the return. Put your numbers in and see it separately.
The property
The sale
You
Where the sale price goes
Sell outright
Structured installment sale (§453)
Year by year — the 25% slice gets reported first
What is the tax bill on your sale going to be?
Send me the sale price and rough basis and I'll email you the actual number within one business day — plus the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation · the carrier compensates the broker, not you.
What unrecaptured §1250 gain actually is
When you own a rental or commercial building, the IRS lets you deduct the building (not the land) over 27.5 years for residential rental property or 39 years for nonresidential — straight line. Those deductions lowered your taxable income every year you held it, and they also lowered your basis. A lower basis means a bigger gain when you sell.
On the sale, that portion of the gain — the part created by depreciation you already deducted — does not get the friendly 0/15/20% long-term rate. Under IRC §1(h)(1)(E) it is taxed at your ordinary rate with a 25% ceiling. That is the number this calculator isolates.
Two points sellers get wrong constantly:
- You owe it whether or not you took the deduction. §1016(a)(2) reduces your basis by depreciation "allowed or allowable." An owner who never depreciated the building still has the smaller basis and the bigger gain on sale, with none of the deductions to show for it — the worst of both. (Narrow exception on rate: §1250(b)(3) can limit the 25% slice to depreciation actually allowed if you can prove it. The basis reduction stands regardless.)
- 25% is a ceiling, not a flat rate. If your ordinary bracket that year is 22%, the §1250 slice is taxed at 22%. Spreading the sale over several lower-income years is exactly how the ceiling stops being the number you pay.
§1250 vs §1245 — they behave completely differently
If you ever ran a cost segregation study, part of your building was reclassified as personal property and five- or seven-year assets: appliances, carpet, cabinetry, specialty electrical, land improvements. That depreciation is §1245 recapture, and it is ordinary income — no 25% ceiling, and under §453(i) it is taxed in full in the year of sale even inside an installment sale. It can never be deferred.
That difference is why a cost-seg study that saved a fortune during the hold can cost real money at the exit, and why it belongs in the model before you sign anything.
Why the 25% slice comes first in an installment sale
Under Reg. §1.453-12, when gain is recognized on the installment method, the unrecaptured §1250 portion is reported before the 15/20% gain. So the early years of a structured installment sale carry the heaviest tax and the later years the lightest — the chart in the calculator shows exactly that shape, and it is the honest version of an illustration most people have never been shown.
It still beats the alternative on most deals, for a simple reason: the ceiling is 25%, but the rate is your bracket. Sold outright, the whole slice stacks on one year's income and hits the ceiling. Spread over ten or twenty years, each year's slice lands in a bracket where you may be paying 22% — and the deferred dollars keep earning in the meantime.
What the calculator does with your numbers
- Estimates depreciation straight-line on the building share, on the correct 27.5 or 39-year life, for the years you owned it — or takes your accumulated figure from Form 4562 if you type it.
- Splits the gain into basis returned, §1245, unrecaptured §1250, and the remaining long-term gain.
- Prices the §1250 slice on its own — federal at your bracket with the §1(h)(1)(E) 25% ceiling applied to that layer directly (not by subtraction, which would charge the §1250 line for pushing other gain into the 20% bracket), plus state and NIIT.
- Runs it both ways — sold outright versus a §453 structured installment sale — with the loan payoff, closing costs and any cash you take at close treated as year-of-sale payments, because that is what they are.
Frequently asked
Q: Is unrecaptured §1250 gain always taxed at 25%? A: No. 25% is a maximum. The slice is taxed at your ordinary marginal rate for that year, and only the portion that would otherwise fall above 25% is capped there. A year with low other income can tax it at 22% or less, which is one reason spreading the sale matters.
Q: What if I never claimed depreciation on my rental? A: You still pay. Under §1016(a)(2) your basis is reduced by depreciation "allowed or allowable," so the gain is bigger whether or not you ever took the deduction — you lose the write-offs and still get the larger gain at the exit. There is one narrow point on rate: §1250(b)(3) lets the recapture computation use the amount actually allowed if you can establish it was less than allowable, which could put that slice at 15/20% instead of the 25% ceiling. The basis reduction stands either way. If you have not sold yet, a Form 3115 automatic change catches the missed depreciation up through a §481(a) adjustment — but the automatic change is unavailable for property disposed of during the year of change (Rev. Proc. 2024-23), so it has to be filed in a year before the sale. That is why this belongs in the conversation before you list, not at escrow.
Q: Does a 1031 exchange eliminate unrecaptured §1250 gain? A: It defers it, it does not erase it. The recapture carries into the replacement property's basis and surfaces on the eventual taxable sale. Death and the step-up in basis clear it; so, in narrower circumstances, do a qualified opportunity fund held ten years or a charitable transfer.
Q: Can a structured installment sale defer the §1250 portion? A: Yes, the §1250 gain rides the note and is reported as payments arrive — but it is reported ahead of the 15/20% gain (Reg. §1.453-12), so the early years are taxed harder than the later ones. §1245 recapture is the piece that cannot be deferred at all (§453(i)).
Q: Does the 3.8% net investment income tax apply to it? A: Usually yes on rental property, once your modified AGI crosses $250,000 married filing jointly or $200,000 single. Gain from an active trade or business you materially participate in can be outside net investment income — worth checking with your CPA.
Q: How accurate is the depreciation estimate? A: It is straight-line on the building share for the years you owned it, which is the right shape for most buy-and-hold owners, but it ignores mid-month conventions, partial years, prior cost-seg elections and any §179 or bonus you took. Your accumulated depreciation from Form 4562 is the real number — type it in and the calculator uses it.
Rough estimate, illustrative and educational only — not tax, legal or investment advice. Bring your depreciation schedule to your CPA before you commit to anything.
Find out what your sale is really going to cost you in tax — and what you can do about it
No retainer. The carrier compensates the broker — not you.
Find out what your tax bill actually looks like before you sell — including the parts your CPA may not raise until the return is already being prepared.
Most people find out what they owe after the sale closes, when nothing can be changed. A short conversation now tells you the number, which layers apply to your situation, and which options are still open while the sale is still in front of you.
- What you will actually owe — federal, the 3.8% surtax, recapture and your state
- Which of those layers you can still do something about
- Whether spreading the sale changes the number in your case
Hans Goldstein · 317-463-6659 · Goldstein & Co. LLC · This is an educational conversation, not tax advice. Bring your CPA in before you file.
Run your specific numbers
The calculator runs your sale through real 2026 federal + state tax brackets and shows §453 savings vs lump sum side-by-side.
Run the calculator → 317-463-6659