Depreciation recapture
When you sell an investment property, the IRS taxes you on the depreciation you claimed while you owned it, capped at 25%. It's the flip side of the yearly depreciation deduction.
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Where this comes up in a sale, and what follows
Part 1 of 4
Why a seller cares
Selling a rental brings back every dollar of depreciation you claimed, taxed at up to 25%, even if the property lost value. It is the tax that surprises landlords selling their first property.
Part 2 of 4
A simple example
You depreciated a rental by $60,000 over eleven years and sell it at a gain. Up to $60,000 is recaptured at up to 25% before the rest of the gain is taxed.
| The piece of the gain | How it is commonly taxed |
|---|---|
| Depreciation claimed, $60,000 | Recaptured at up to 25% |
| The rest of the gain | Long-term capital gains rates |
| Rolled into a 1031 exchange | Deferred, recapture included |
Depreciation was a deduction on loan. Selling is when it is paid back.
Part 3 of 4
What people get wrong
That skipping depreciation avoids recapture. The rule taxes depreciation allowed, whether or not it was claimed.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
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