Unrecaptured Section 1250 Gain, in Plain English
Most sellers know the 0%, 15% and 20% capital gains rates. Fewer know that a slice of a real estate sale gets taxed at 25%, and that slice is often the largest single line on the bill.
By Hans Goldstein, EA, Tax & Exit Planning · Updated
Admitted to practice before the IRS.
That slice is unrecaptured Section 1250 gain.
Go deeper: Section 1245 vs 1250 recapture and how each is taxed on Big Sale Tax.
Selling real estate you have depreciated? Get your real number
Your unrecaptured 1250 gain depends on the depreciation you took and your other income. Hans can run your numbers.
Where the odd name comes from
Section 1250 governs depreciation recapture on real property. It was written when buildings could be depreciated on accelerated schedules, and its job was to claw back the excess of accelerated depreciation over straight-line and tax it as ordinary income.
Then the 1986 Tax Reform Act required straight-line depreciation on essentially all buildings. With no accelerated portion left, there was nothing for the original §1250 rule to recapture on modern property.
So Congress created a separate bucket for the straight-line depreciation instead. It is "unrecaptured" precisely because §1250 itself doesn't recapture it as ordinary income. It gets its own maximum rate of 25%.
The name describes a piece of tax history, not anything about your building, which is why people misread it so often.
How it is calculated
Take the lesser of two numbers:
- The total straight-line depreciation you took, or were allowed to take, on the property.
- The total gain you actually realized on the sale.
What is the tax bill on your sale going to be?
Send me the sale price and rough basis. Within one business day I'll email you the actual number and the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation. Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
That amount is unrecaptured Section 1250 gain, taxed at a maximum of 25%. Anything left over is ordinary long-term capital gain at 0%, 15% or 20%.
The second condition matters. If you sell at a loss relative to your original cost but still have gain because depreciation drove your basis down, your recapture is capped at the actual gain. You never owe recapture on more than you made.
A worked example
You bought a rental for $500,000 with $100,000 allocated to land. You depreciated the $400,000 building over 12 years at roughly $14,545 a year, so $174,545 of depreciation.
- Adjusted basis: $500,000 − $174,545 = $325,455
- Sale price: $800,000
- Total gain: $474,545
That gain splits:
If you had assumed one blended 15% rate across the whole $474,545, you'd have budgeted about $71,000. The actual federal bill is closer to $89,000 before the 3.8% net investment income tax and before state tax. On a California sale, add roughly 13.3%.
Run your own figures in the capital gains tax calculator, which separates the 25% bucket from the rest.
§1250 vs §1245: not the same thing
If you ran a cost segregation study, you moved dollars out of the 25% bucket and into the ordinary-income bucket. The deductions came faster and the recapture comes back harder. That trade can still be worth it, especially with a long hold or a 1031 exit, but it should be a decision rather than a surprise.
Three things that trip people up
An installment sale spreads it, but it comes out first. Unrecaptured §1250 gain is not "recapture income" under §453(i), so it is reported as payments arrive. Under Treas. Reg. §1.453-12 it is taken into account before the 15/20% gain, so the early payments carry the 25% piece. The ordinary-income recapture from a cost segregation study is different: §453(i) puts that in the year of sale.
It applies even if you never claimed the depreciation. The standard is "allowed or allowable." Not depreciating your rental does not protect you; it just means you paid for the deduction without receiving it.
A 1031 exchange carries it forward rather than erasing it. The unrecaptured gain follows into the replacement property. Take boot and it is recognized first, before capital gain.
Frequently asked
Q: What is the unrecaptured Section 1250 gain tax rate? A: A maximum of 25%. It is a ceiling, not a flat rate: if your ordinary bracket is below 25%, the gain is taxed at your lower rate. Q: Where does it appear on my return? A: It is computed on the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions, and it flows through Schedule D. The sale itself is reported on Form 4797 and Form 8949. Q: Does the Section 121 home sale exclusion cover it? A: No. If you rented out a home and later sold it, the $250,000/$500,000 exclusion does not shelter depreciation taken after May 6, 1997. That depreciation is still unrecaptured Section 1250 gain. Q: Is unrecaptured Section 1250 gain the same as depreciation recapture? A: It is one of the two kinds. Depreciation recapture is the umbrella term; unrecaptured §1250 gain is the real-property piece taxed at 25%, and §1245 recapture is the personal-property piece taxed as ordinary income.
Find out what your sale is really going to cost you in tax, and what you can do about it
No retainer. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans’s share is about 2.4%; no trail). It is built into the annuity pricing, not a separate fee.
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 · 213-414-2808 · Hans Goldstein: Tax & Exit Planning · This is an educational conversation, not tax advice. Bring your CPA in before you file.
Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
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 → 213-414-28082026 federal rates on a property sale
Federal layers on a 2026 sale of real property held over a year
| Layer | Rate | 2026 threshold (joint / single) |
|---|---|---|
| Long-term capital gain | 0% | Taxable income up to $98,900 / $49,450 |
| Long-term capital gain | 15% | Up to $613,700 / $545,500 |
| Long-term capital gain | 20% | Above $613,700 / $545,500 |
| Unrecaptured §1250 gain (straight-line depreciation on the building) | Up to 25% | Taxed at your ordinary rate, capped at 25% |
| §1245 recapture (equipment, cost-segregated components) | Ordinary, up to 37% | Recognized in the year of sale, even on an installment sale |
| Net investment income tax | 3.8% | Modified AGI above $250,000 / $200,000 (not indexed) |
Source: IRS Rev. Proc. 2025-32 (2026 inflation adjustments), 26 U.S.C. §1(h) and §1411, checked October 3, 2026. The 25% figure is a ceiling: if your ordinary bracket is lower, that rate applies.
People also ask
What to do with unrecaptured section 1250 gain?
Report it, plan for it, and spread it if you can. It is computed on the Schedule D worksheet and taxed at up to 25%. Because it is not §453(i) recapture, an installment sale or structured installment sale reports it as payments arrive, though Treas. Reg. §1.453-12 takes it out first. A 1031 exchange carries it into the replacement property instead of erasing it.
What is an unrecaptured section 1250 gain worksheet?
It is the worksheet in the Schedule D instructions that computes how much of your gain is taxed at the 25% maximum rate. It pulls the straight-line depreciation on real property from Form 4797, installment sale amounts from Form 6252, and pass-through amounts from K-1s, and the result goes to Schedule D line 19 and the tax computation worksheet.
How to calculate unrecaptured section 1250 gain?
Take the lesser of the total straight-line depreciation allowed or allowable on the building and your total gain on the sale. Example: a $500,000 rental with $100,000 of land, depreciated $174,545 over 12 years, sold for $800,000. Gain is $474,545; $174,545 of it is unrecaptured §1250 gain at up to 25% and the other $300,000 is long-term capital gain.
Where is unrecaptured section 1250 gain reported on 1040?
It flows through Schedule D. The sale is reported on Form 4797 (and Form 6252 for an installment sale), the 25% amount is computed on the Unrecaptured Section 1250 Gain Worksheet, and the total goes on Schedule D line 19. That figure feeds the Schedule D Tax Worksheet, which applies the 25% cap when it computes the tax on Form 1040.
Related
- Depreciation recapture tax rate
- Unrecaptured §1250 gain calculator
- Recapture in an installment sale
- Structured installment sale calculator
Sources: IRS Schedule D instructions (Unrecaptured Section 1250 Gain Worksheet); Treas. Reg. §1.453-12; IRS Rev. Proc. 2025-32. Checked October 3, 2026.