How much depreciation recapture will I owe when I sell my rental?

The number you need is accumulated depreciation, and it is already on your own returns

Recapture is measured by write-offs, not by appreciation. Find the running total on the depreciation schedule your preparer attaches each year, on Form 4562 for the years an asset was added, or on the fixed-asset report behind Schedule E.

Only the improvement share ever depreciated. If you bought at $500,000 and allocated $100,000 to land, the $400,000 building has been running at $400,000 ÷ 27.5, or about $14,545 a year, since Publication 946 sets residential rental property at 27.5 years and nonresidential real property at 39.

Add the pieces people forget: a roof or HVAC replacement capitalized on its own schedule, appliances and carpet on 5-year lives, and land improvements on 15. Each carries its own recapture. Rebuilding the whole figure is the job of calculating your adjusted basis.

Straight-line depreciation on the building is a 25% layer, not a 15% one

Section 1(h)(6) defines unrecaptured section 1250 gain as the long-term gain that 'would be treated as ordinary income if section 1250(b)(1) included all depreciation and the applicable percentage under section 1250(a) were 100 percent'. Topic 409 states the rate: gain 'from selling section 1250 real property is taxed at a maximum 25% rate'.

True §1250 ordinary recapture is a different and usually empty box. §1250(b)(1) reaches only depreciation 'to the extent that they exceed the amount... determined... under the straight line method', and MACRS real property is straight line, so most landlords have none.

Two limits keep the layer honest. It cannot exceed the gain you actually realize, so a property sold at or below adjusted basis produces no recapture at all, and the 25% figure is a ceiling: if your ordinary bracket is lower, the lower rate applies.

Cost segregation converts part of the same depreciation into ordinary income at up to 37%

§1245(a)(1) claws back the depreciation taken on those components as ordinary income, measured against recomputed basis, and §1245(a)(3) reaches personal property and other tangible property that is not the building itself. Carpet, cabinetry, dedicated electrical, signage and site equipment pulled out of a building by a study all sit there.

The acceleration makes it sharper. Publication 946 restores a full first-year write-off for qualifying property acquired after the January 19, 2025 cutoff, so components can reach a zero basis immediately and nearly the whole amount allocated to them on the sale is ordinary income.

IPX1031 makes the exchange consequence explicit: if 'a cost segregated shopping center were exchanged for vacant land, there would be no depreciable personal property in the Replacement Property', which under §1245(b)(4) can force recapture even in an otherwise clean exchange. See can I owe recapture with no cash.

Worked example: a $400,000 building depreciated for ten years

Hypothetical, round numbers, state tax and selling costs ignored; have your CPA run your own schedule. You paid $500,000 with $100,000 allocated to land, depreciated the $400,000 building on a 27.5-year residential schedule for ten years, and claimed about $145,000. Adjusted basis is roughly $355,000.

You sell net of costs at $700,000, so the realized gain is $345,000. The first $145,000 is unrecaptured section 1250 gain at 25%, or $36,250. The remaining $200,000 is long-term capital gain at 15% for most sellers, or $30,000.

The net investment income tax adds 3.8% on the whole $345,000 once modified AGI passes $200,000 single or $250,000 joint, another $13,110. Federal total: about $79,360, of which the depreciation layer alone accounts for $41,760 with its share of the NIIT.

• Depreciation layer: $145,000 × 25% = $36,250, plus $5,510 of NIIT.
• Appreciation layer: $200,000 × 15% = $30,000, plus $7,600 of NIIT.
• Same facts with a cost segregation study that put $60,000 into 5-year components: that $60,000 leaves the 25% layer and is taxed at your ordinary bracket instead.
• Selling at $500,000 instead would leave a $145,000 gain that is entirely the 25% layer, with no capital-gain slice at all.

Where it lands on the return, and why the 3.8% surtax is easy to miss

The sale goes on Form 4797. The instructions put §1245 recapture on Part III line 25 and §1250 recapture on line 26, and direct that you 'identify the amount of gain that is unrecaptured section 1250 gain and report it on the Schedule D for the return you are filing', where the worksheet applies the 25% cap.

The surtax catches sellers who were never subject to it before, because the gain itself is what pushes modified AGI over the threshold. Those thresholds are not indexed for inflation, so they have not moved since 2013.

Many states then tax the whole gain as ordinary income with no preferential rate, and several withhold at closing. Start with state rules by state and will the state withhold at closing.

A full exchange defers the entire layer; a partial one gives it back first

Nonrecognition under §1031 covers the depreciation layer and the appreciation layer alike, so a clean exchange moves the whole $79,360 in the example forward and the basis carries over. That is the point of does a 1031 defer depreciation recapture, and is a 1031 tax-free or deferred explains what happens when the chain finally ends.

If you take boot, it is generally drawn from the 25% layer first, which is why a modest cash remainder can be taxed at a higher rate than the gain it came from (recapture or capital gain first). Holding until death removes the layer entirely through the basis step-up, weighed in selling now vs holding for the step-up.

When the replacement is meant to be passive rather than another building to manage, a Delaware Statutory Trust interest is fractional real property that qualifies as replacement property. Our part is the replacement side only: a 1031 exchange brokerage of twenty-plus years, carrying licences in all fifty states under a regulated broker-dealer framework, with over a billion dollars placed alongside vetted national DST sponsors. Confirm every figure with your CPA or attorney before you sign a listing agreement.