Depreciation Recapture Calculator
About this calculator
Free, instant, and backed by a CPA-led qualified intermediary — built for investors deciding between an outright sale and a 1031 exchange.
Free, instant, CPA-led QI
The tool is free, runs entirely in your browser, and stores nothing you enter. Behind it is Universal Pacific, a qualified intermediary led by a CPA. When you sell and reinvest, we hold your exchange funds, prepare the documents, and keep your 45- and 180-day deadlines on the calendar so nothing slips.
What makes this one different
Most recapture calculators multiply your depreciation by 25%, multiply the rest by 15%, and add. That is not how the tax works. This one runs the Schedule D stacking method, splits your gain into the buckets the IRS actually uses, adds the 3.8% surtax on the correct base, and shows California separately. It also tells you the real effective rate on your recapture, which is usually well under 25%.
How depreciation recapture works
Four things that decide your number, and where the common shortcut goes wrong.
Why 25% is a ceiling, not a rate
Every year you own a rental, you deduct a slice of the building. Residential runs 27.5 years, commercial 39. Those deductions cut your taxable income while you hold and cut your basis at the same pace, so they come back as gain when you sell. That slice is unrecaptured §1250 gain, and it is taxed under its own rule at a maximum of 25%.
Maximum is the operative word. IRC §1(h)(1)(A)(ii) taxes that gain at ordinary rates up to the top of the 24% bracket, and only charges 25% above it. A couple with $200,000 of other income and $150,000 of depreciation pays an effective 23.42% on the recapture. At $40,000 of other income, they pay 15.57%. The shortcut says 25% in both cases.
Recapture sits below your capital gain
The stacking order matters twice over. Recapture fills your brackets from the top of your ordinary income upward, which is why it often lands at 22% or 24% rather than 25%. But it also sits underneath the rest of your capital gain in the stack, so it consumes your 0% and 15% capital gain bracket room before the residual gain gets any.
Recapture does not just cost you a higher rate on itself. It pushes everything above it into higher brackets. Any calculation that treats the two buckets as independent products misses that entirely.
Depreciation you never claimed still counts
IRC §1016(a)(2) reduces basis by depreciation “allowed or allowable … but not less than the amount allowable.” Publication 946 says the same in plain English: skip the deduction and you still reduce basis by the full allowable amount. An investor who never depreciated their rental gets taxed as though they had.
If that describes you, the fix is real. Missed depreciation on one return can go on an amended return. Missed on two or more consecutive returns and you are into Form 3115 with a §481(a) adjustment. Either way, handle it before you list, not after closing.
Cost segregation changes the exit math
A building is §1250 property. A cost segregation study carves out shorter-lived components — carpet, cabinetry, appliances, specialty electrical — and those are §1245 property, recaptured as ordinary income with no rate cap at all.
In the 24% bracket this changes nothing, since 24% is below the ceiling anyway. In the 35% bracket the same $60,000 of depreciation costs $21,000 instead of $15,000. Fifteen-year land improvements sit in contested territory between the two sections, so the Expert mode asks for your own figure rather than picking a side.
The two taxes people forget
Passive rental gain is net investment income, so a 3.8% surtax applies under IRC §1411. It is not 3.8% of your gain — the statute charges 3.8% of the lesser of your net investment income and the amount your modified AGI exceeds $250,000 joint or $200,000 single. Those thresholds have not moved since 2013.
California adds the second. FTB taxes capital gains as ordinary income at ordinary California rates, with no holding-period distinction and no state equivalent of the 3.8% surtax — so the federal surtax stacks on the state bill with nothing to offset it.
What a 1031 exchange defers
A properly structured exchange defers all of it: the ordinary §1245 recapture, the 25% bucket, the residual capital gain, and the 3.8% surtax. The surtax deferral runs through a single parenthetical in §1411 — gain counts only to the extent taken into account in taxable income, and §1031 keeps it out.
What it does not do is erase anything. Your basis carries over and the deferred gain rides with it. Take cash out or cut your debt without adding cash and that boot is taxable now — at the worst rate first, since ordinary recapture comes out of boot before any capital gain treatment. Our page on 1031 exchanges and depreciation recapture covers how the buckets survive an exchange.
How it works
Five steps from your closing statement to a number you can plan around.
Enter your basis
Purchase price, capital improvements, and the depreciation from your Form 4562.
Add the sale
Contract price and your selling costs, usually 6% to 8%.
Give us your income
Filing status and other taxable income. This decides which brackets the recapture fills.
Read the buckets
See each slice of gain, its own rate, and the real effective rate on your recapture.
Compare an exchange
A 1031 defers the whole bill. Talk to a QI before you list, not after.
Frequently asked questions
The questions investors ask most about depreciation recapture.
Is depreciation recapture taxed at a flat 25%?
No. 25% is the maximum rate, not the rate. Unrecaptured section 1250 gain fills your ordinary brackets first, at 10%, 12%, 22% and 24%, and only the portion above the top of the 24% bracket is taxed at 25%. A joint filer with $200,000 of other income and $150,000 of recapture pays an effective 23.42%. Drop the other income to $40,000 and the effective rate falls to 15.57%. The rate depends on your income, which is why the calculator asks for it.
Do I owe recapture if I never claimed depreciation?
Yes. IRC section 1016(a)(2) reduces your basis by depreciation allowed or allowable, whichever is greater. Publication 946 spells it out: if you do not claim depreciation you were entitled to deduct, you still reduce basis by the full allowable amount. Missed depreciation on a single return can go on an amended return. Missed it on two or more consecutive returns and you need Form 3115 with a section 481(a) adjustment. Sort it out before the sale closes, because it changes your basis and therefore your gain.
Does a 1031 exchange eliminate depreciation recapture?
It defers it, which is not the same thing. A clean exchange with no boot postpones the recapture, the capital gain and the 3.8% surtax together. The deferred gain carries into the replacement property through your carryover basis, so it surfaces later unless you keep exchanging or hold to death. Recognize boot, whether by taking cash out or cutting your mortgage without adding cash, and recapture comes out of that boot ahead of any capital gain treatment.
Why is my whole gain showing as recapture?
Because unrecaptured section 1250 gain is capped at the lesser of your depreciation or your total gain. If you sold for less than you originally paid but more than your depreciated basis, the entire gain is depreciation coming back and there is nothing left to tax at 15% or 20%. The Schedule D instructions state this as Step 1 of the Unrecaptured Section 1250 Gain Worksheet. Calculators that always show a residual capital gain layer have this backwards.
Does the 3.8% net investment income tax apply to my sale?
For a passive rental investor, yes, but on a formula rather than a flat 3.8% of the gain. You pay 3.8% of the smaller of your net investment income and the amount your modified AGI exceeds the threshold: $250,000 joint, $200,000 single or head of household, $125,000 married filing separately. Those thresholds are written into the statute and have never been indexed. Real estate professionals who also clear the 500-hour participation test in Treasury Regulation section 1.1411-4(g)(7)(i) fall outside the surtax, and the calculator has a toggle for it.
How does California treat the gain?
As ordinary income at ordinary California rates. There is no preferential capital gains rate and no holding-period distinction, and no California equivalent of the federal 3.8% surtax, so the two stack with no credit or offset. The top marginal rate reaches 13.3% once the 1% Behavioral Health Services Tax on income above $1 million applies, but for joint filers the 12.3% bracket does not begin until $1,485,906, so the band between $1 million and $1.49 million runs at 12.3%. California brackets for 2026 have not been published; FTB's own 2026 Form 540-ES instructions direct taxpayers to the 2025 tables, which is what this calculator uses.
What does a cost segregation study do to my recapture bill?
It shifts part of your depreciation out of the 25%-capped section 1250 bucket and into uncapped section 1245 ordinary income. If your ordinary rate is 24% or below, that costs nothing extra on sale, because the two are taxed the same at that level. In the 32%, 35% or 37% brackets it costs real money. The accelerated deductions during the hold usually still win on a present-value basis, but run the exit math before you sell rather than after.
Does this calculator handle an installment sale or a partial exchange?
No. It models a single, fully taxable cash sale by an individual or pass-through entity. Installment reporting under section 453, partial exchanges, passive-activity loss carryforwards, AMT, multi-owner allocations, corporate section 291 recapture and states other than California all sit outside its scope. Every assumption it applies is listed underneath your result, so you can see exactly what was and was not modelled before you take the number anywhere.
Selling, or thinking about exchanging?
Run the recapture number, then see what a 1031 exchange would defer. Universal Pacific sets up the exchange, holds the funds, and tracks every deadline with you. Weighing the fees against the deferral? Start with our breakdown of 1031 exchange costs, or read how a reverse 1031 exchange works if you need to buy before you sell.
Contact our team