Calculator
Depreciation recapture calculator
Depreciation lowers your taxable income each year you own a rental. When you sell, the gain attributable to that depreciation is taxed at up to 25 percent. This calculator estimates the depreciation taken and, if you add the sale, the full tax on the sale.
The property
Land is not depreciated. The assessor's land-to-building ratio is a common starting point.
If you have the figure from Form 4562 or your depreciation schedule, enter it and it replaces the estimate.
Add the sale
Optional. Used only for the net investment income tax. Leave blank to apply it to the whole gain.
Estimate
Enter the purchase price and years held.
How the estimate is built
- Depreciable basis is the purchase price minus land. Straight-line depreciation over 27.5 years (residential rental) or 39 years (nonresidential) is applied for the years held, capped at the building's basis. Mid-month convention, bonus depreciation on components and cost segregation are ignored unless you enter the actual figure.
- Skipping depreciation does not avoid the gain. Basis is reduced by depreciation allowed or allowable (section 1016(a)(2)), so skipping depreciation still increases the gain. How the unclaimed amount is taxed is a question for your tax advisor.
- Unrecaptured section 1250 gain is the gain up to the depreciation taken, taxed at a maximum federal rate of 25 percent (section 1(h)(1)(E)). The calculator applies 25 percent; a lower ordinary rate can apply to taxpayers in lower brackets. It cannot exceed the total gain: if the property is sold for less than the adjusted basis plus depreciation, only part of the depreciation is recaptured.
- The rest of the gain is long-term capital gain at the rate you select. The calculator assumes the property was held more than one year. State tax, when applied, uses the whole gain. The net investment income tax, when applied, is 3.8 percent of the lesser of the gain and the amount by which your modified adjusted gross income, including the gain, exceeds the threshold for your filing status ($200,000 single or head of household, $250,000 married filing jointly, $125,000 married filing separately; section 1411(b), not indexed). If you leave income blank, the whole gain is used, as in the worked example below, which can overstate the tax. Gain on non-passive business property can be excluded.
- A 1031 exchange defers all of it. In a fully reinvested exchange, the recapture and the capital gain are both deferred, and the depreciation history carries into the replacement property.
| Depreciable basis | $400,000 |
| Depreciation taken over 10 years | $145,455 |
| Adjusted basis | $354,545 |
| Gain on sale | $303,455 |
| Recapture tax, 25% of $145,455 | $36,364 |
| Capital gains tax, 15% of $158,000 | $23,700 |
| Net investment income tax, 3.8% of $303,455 | $11,531 |
| Federal tax on the sale | $71,595 |
This is an estimate for orientation, not tax advice. Your tax advisor prepares Form 4797 and Schedule D from the actual depreciation schedule.
Planning a sale?
Read how depreciation recapture works in an exchange, or contact onezero3one about acting as qualified intermediary.