Want the rules behind the numbers first: what counts as section 1245 versus section 1250 property, why unclaimed depreciation is still recaptured, and how 1031 exchanges, installment sales, gifts and inherited property change the result? Read the companion guide.
Read the Depreciation Recapture Guide →
Short Answer
Depreciation recapture is the part of your gain equal to the depreciation you took (or were allowed to take), up to the total gain. On equipment, machinery and vehicles (section 1245 property) it is taxed as ordinary income at 10 to 37 percent. On a rental or commercial building depreciated straight-line it is unrecaptured section 1250 gain, taxed at your ordinary rate but never above 25 percent. Any gain above the depreciation is section 1231 gain, taxed at the 0, 15 or 20 percent long-term rates, and the 3.8 percent NIIT can apply to the whole gain on a passive rental.
Key Takeaways
- Recapture = smaller of depreciation or gain. No gain, no recapture (IRS Publication 544).
- Section 1245 (equipment, vehicles, furniture, §179 assets): recaptured depreciation is ordinary income.
- Section 1250 straight-line real property (rentals, commercial buildings): the depreciation becomes unrecaptured §1250 gain, taxed at up to 25% (IRC §1(h)(1)(E)).
- Allowed or allowable: depreciation you never claimed still reduces basis and is still recaptured.
- Held 1 year or less: the entire gain is ordinary income on Form 4797 Part II.
- 2026 long-term rates on the rest of the gain: 0% to $49,450 single / $98,900 MFJ taxable income, 15% to $545,500 / $613,700, then 20% (Rev. Proc. 2025-32).
- NIIT: 3.8% on the lesser of the gain or MAGI over $200,000 single / $250,000 MFJ / $125,000 MFS (IRC §1411), for passive or investment property.
How This Calculator Works
Step 1 - Gain on the sale
Amount realized is the sale price minus selling expenses. Adjusted basis is your cost (purchase price plus capital improvements) minus the depreciation allowed or allowable. Gain is amount realized minus adjusted basis, the same figure Form 4797 reaches on line 24. If the result is zero or negative there is nothing to recapture; the calculator reports the loss and, treating it as an ordinary loss (your only section 1231 transaction, or a short-term business asset), the reduction in your regular federal tax.
Step 2 - Split the gain by property type
Section 1245 property: ordinary income is the smaller of the depreciation or the gain (Publication 544, Form 4797 line 25). Gain above the depreciation, which only happens when you sell for more than you paid, is section 1231 gain. Section 1250 straight-line real property: there is no additional depreciation, so no ordinary recapture. The smaller of the depreciation or the gain is unrecaptured section 1250 gain (Unrecaptured Section 1250 Gain Worksheet, line 1), and the rest is long-term gain.
Step 3 - The section 1231 lookback
If you enter nonrecaptured net section 1231 losses from the five prior years, that much of the section 1231 gain is recharacterized as ordinary income under IRC §1231(c). Following the Schedule D instructions (worksheet lines 8 and 9), the recharacterized amount reduces unrecaptured section 1250 gain before it touches the 0/15/20 percent gain.
Step 4 - Holding period
If you held the property one year or less, it is not section 1231 property and the whole gain is ordinary income, reported in Form 4797 Part II. The calculator then taxes the full gain at ordinary rates.
Step 5 - Stack the layers at 2026 rates
Taxable income is your other AGI plus the gain, minus the larger of your itemized deductions or the 2026 standard deduction ($16,100 single and MFS, $32,200 MFJ, $24,150 head of household). Itemized deductions first go through the 2026 limit in IRC §68 (P.L. 119-21 §70111): they are cut by 2/37 of the smaller of the itemized total or the amount by which income before deductions exceeds the start of the 37% bracket ($640,600 single and head of household, $768,700 MFJ, $384,350 MFS). A sale that lifts income past that point shrinks the deduction, and the calculator taxes the lost deduction as ordinary income from the sale. Following the Schedule D Tax Worksheet, ordinary income (including section 1245 recapture) sits at the bottom, unrecaptured section 1250 gain sits on top of it and is taxed at the ordinary bracket rate capped at 25 percent, and the remaining long-term gain sits on top at 0, 15 or 20 percent. For the 15 percent breakpoint, section 1250 gain counts only up to the top of the 24 percent bracket (worksheet line 21), so 1250 gain taxed at 25 percent does not use up 15 percent room. The tax shown is the increase over the tax on your other income alone.
Step 6 - Net investment income tax
When you mark the property as a passive rental or investment, the calculator adds 3.8 percent of the lesser of the gain or the amount by which MAGI (other AGI plus the gain) exceeds the IRC §1411 threshold. Gain from property used in a non-passive trade or business is not net investment income, so choose "does not apply" for active business equipment.
Worked Example: Selling a Rental House (MFJ, 2026)
These are the calculator's default inputs. A couple bought a rental for $400,000 ($80,000 land, $320,000 building) and took $116,000 of straight-line depreciation over about ten years. They sell for $650,000 with $39,000 of selling costs. Their other AGI is $140,000 and they take the standard deduction.
Gain
Amount realized ($650,000 - $39,000)$611,000
Adjusted basis ($400,000 - $116,000)$284,000
Total gain$327,000
Unrecaptured §1250 gain (lesser of $116,000 or $327,000)$116,000
Remaining long-term gain$211,000
2026 federal tax on the sale
Taxable income ($140,000 + $327,000 - $32,200)$434,800
Ordinary income below the gain$107,800
§1250 gain: $103,600 at 22% + $12,400 at 24%$25,768
Long-term gain: $211,000 at 15%$31,650
NIIT: 3.8% x ($467,000 MAGI - $250,000)$8,246
Total federal tax from the sale$65,664
Had the $116,000 been taxed like the rest of the gain at 15 percent, it would have cost $17,400. Recapture adds $8,368. Notice that the §1250 layer never reached the 25 percent ceiling here: it filled the 22 and 24 percent brackets, which is exactly what the Schedule D Tax Worksheet requires. The 25 percent rate only bites for the part of the §1250 gain that would otherwise land in the 32 percent bracket or higher.
Practitioner Insight
Practitioner Insight
The figure that surprises clients most is not the 25 percent rate, it is the equipment line. A contractor who expensed a $180,000 excavator under section 179 has a $0 basis, so selling it for $95,000 produces $95,000 of ordinary income, not capital gain, and with $85,000 of other AGI filing single that is $22,064 of federal tax. We see owners trade in or sell fully expensed trucks and machines in December thinking the sale is "just capital gain," then discover the recapture pushes them into the 24 percent bracket. Before selling a heavily expensed asset, ask whether a like-kind trade is possible (it is not for equipment since 2018; section 1031 now covers real property only) or whether the sale can move into a lower-income year.
Real-World Scenario: The Truck from IRS Publication 544
Publication 544 walks through a business owner who bought a light-duty truck in February 2023 for $10,000, used it 100 percent for business, and claimed MACRS depreciation of $2,000 (2023), $3,200 (2024) and $960 (2025, the year of sale). The truck sold in May 2025 for $7,000.
Publication 544 example
Amount realized$7,000
Cost$10,000
Depreciation allowed or allowable$6,160
Adjusted basis$3,840
Gain$3,160
Gain treated as ordinary income (lesser of $6,160 or $3,160)$3,160
Enter "Equipment, machinery, vehicle," a $7,000 sale price, $10,000 cost and $6,160 depreciation, and the calculator shows the same $3,160 of section 1245 ordinary income. Because the truck sold for less than it cost, every dollar of gain is recapture; none of it is section 1231 gain. The tax figure the calculator adds on top uses 2026 brackets, so it will differ from the 2025 return in the publication.
When This Calculator Does Not Cover Your Situation
- Several property sales in one year: section 1231 gains and losses are netted across all of the year's transactions before the lookback and capital gain rates apply. This tool models one sale.
- A building and its contents sold together: appliances, carpet and other personal property in a rental are section 1245 property, and cost-segregated components carry ordinary recapture. Allocate the price and run each class separately.
- Accelerated depreciation on real property: real property depreciated faster than straight-line (pre-1987 ACRS, bonus depreciation on real property, or §179 on qualified real property) can create section 1250 or section 1245 ordinary recapture that this tool does not compute.
- Installment sales: section 1245 recapture is taxable in the year of sale even if you receive no cash (IRC §453(i)). Use the Installment Sale Calculator to spread the rest.
- Like-kind exchanges and involuntary conversions: recapture is limited to the gain you recognize. Use the 1031 Exchange Calculator for boot.
- A former home or home office: the §121 exclusion does not cover depreciation claimed after May 6, 1997, but it can exclude the rest of the gain. Use the Home Sale Capital Gains Calculator.
- Other capital gains or losses, carryovers, or qualified dividends: these change the stacking and are not modeled. A capital loss carryover can also reduce unrecaptured section 1250 gain (worksheet lines 15 to 17).
- State income tax: most states tax the whole gain as ordinary income with no 25 percent cap.
Quick Reference: How Each Part of the Gain Is Taxed in 2026
Gain layers on a sale of depreciated property held more than 1 year
| Layer | Applies to | 2026 federal rate | Form |
|---|
| §1245 ordinary recapture | Equipment, vehicles, furniture, §179 and bonus assets | Ordinary, 10% to 37% | Form 4797 Part III line 25, then Part II |
| §1250 additional depreciation | Real property depreciated faster than straight-line | Ordinary, 10% to 37% | Form 4797 Part III line 26 |
| Unrecaptured §1250 gain | Straight-line rentals and commercial buildings | Ordinary rate, maximum 25% | Schedule D line 19 worksheet |
| §1231 lookback amount | Gain matched to prior 5 years of net §1231 losses | Ordinary, 10% to 37% | Form 4797 line 8 |
| Remaining §1231 gain | Gain above the depreciation | 0% / 15% / 20% | Form 4797 Part I, Schedule D |
| Net investment income tax | Passive or investment property, MAGI over threshold | +3.8% | Form 8960 |
Sources: IRC §§1(h), 1231, 1245, 1250, 1411; IRS Publication 544 (2025); Instructions for Form 4797 and Schedule D (2025); Rev. Proc. 2025-32.
FAQ: Depreciation Recapture Calculator
What is depreciation recapture?
Depreciation recapture is the part of the gain on a sale of depreciated property that the tax law treats less favorably than ordinary long-term capital gain because it reflects depreciation you deducted (or could have deducted) while you owned the property. For equipment, vehicles and other section 1245 property, the recaptured amount is ordinary income. For a rental building or other real property depreciated on the straight-line method, the matching amount is unrecaptured section 1250 gain, taxed at your ordinary rate but never more than 25 percent.
What is the depreciation recapture tax rate in 2026?
There is no single recapture rate. Section 1245 recapture on equipment and vehicles is ordinary income, taxed at your regular 2026 bracket rate of 10 to 37 percent. Unrecaptured section 1250 gain on a rental building is taxed at your ordinary rate up to a maximum of 25 percent under IRC section 1(h)(1)(E). The 3.8 percent net investment income tax can apply on top if the property was a passive or investment holding and your modified AGI exceeds $200,000 single or $250,000 married filing jointly.
How is depreciation recapture calculated?
Start with the gain: amount realized (sale price minus selling costs) minus adjusted basis (cost plus improvements minus depreciation allowed or allowable). The recaptured amount is the smaller of the gain or the depreciation. For section 1245 property that amount is ordinary income and any gain above it is section 1231 gain. For straight-line real property the same amount is unrecaptured section 1250 gain and the rest of the gain is taxed at the 0, 15 or 20 percent long-term rates. IRS Publication 544 and Form 4797 Part III use this order.
Do I owe recapture on depreciation I never claimed?
Yes. Basis must be reduced by the depreciation allowed or allowable, whichever is greater, so depreciation you were entitled to but did not deduct still lowers your basis and still counts toward recapture when you sell (IRS Publication 946 and Publication 544). If you missed depreciation, you may be able to correct it on amended returns or by filing Form 3115 for a change in accounting method before or in the year of sale.
Does a rental property sale have section 1250 ordinary recapture?
Usually not. Section 1250 ordinary recapture applies only to additional depreciation, meaning depreciation in excess of straight-line. Residential rental and nonresidential real property placed in service after 1986 is depreciated straight-line under MACRS, so if you held it more than one year there is normally no additional depreciation. The depreciation is instead captured as unrecaptured section 1250 gain and taxed at up to 25 percent.
Can I avoid depreciation recapture?
You can defer or eliminate it in specific situations. A qualifying section 1031 like-kind exchange of real property defers the gain, including the recapture, into the replacement property. Property transferred at death produces no recapture gain for the decedent, and a gift moves the recapture to the recipient rather than triggering it. An installment sale does not defer section 1245 recapture: section 453(i) makes it taxable in the year of sale.
What happens if I sell depreciated property at a loss?
There is no recapture on a loss, because recapture is limited to the gain. A loss on business or rental property held more than one year is a section 1231 loss. If your section 1231 transactions for the year net to a loss, the net loss is an ordinary loss. That loss also starts a five-year lookback: net section 1231 gains in the next five years are treated as ordinary income up to the unrecaptured losses.
What is the section 1231 lookback rule?
Under IRC section 1231(c), a net section 1231 gain is treated as ordinary income to the extent of your nonrecaptured net section 1231 losses from the five preceding tax years. The Schedule D instructions apply that recharacterized amount against unrecaptured section 1250 gain first. Enter any nonrecaptured losses in the calculator to see how much of the gain they convert to ordinary income.
Where is depreciation recapture reported?
On Form 4797. Property held more than one year goes through Part III, which computes the section 1245 or section 1250 ordinary income on line 25 or 26. That ordinary amount flows to Part II, and the remaining gain flows to Part I as section 1231 gain and then to Schedule D. Unrecaptured section 1250 gain is figured on the Unrecaptured Section 1250 Gain Worksheet and entered on Schedule D line 19. Property held one year or less is reported in Part II as ordinary gain.
Decision Step: Sell Now, Exchange, or Hold?
Route A - Sell and pay the recapture
Your result above is the cost of a clean exit. If the §1250 layer lands in the 22 or 24 percent bracket, selling in a lower-income year (after retirement, or a year with business losses) can cut the recapture rate without any planning structure.
Route B - Defer with a 1031 exchange (real property only)
Reinvesting the full proceeds in like-kind real property defers both the §1250 gain and the long-term gain. Model the boot with the 1031 Exchange Calculator. Equipment and vehicles no longer qualify.
Disclaimer: This calculator provides federal tax estimates for tax year 2026 for educational purposes only. It does not constitute tax advice. It models one sale and assumes no other capital gains, losses or section 1231 transactions. Consult a qualified tax professional before selling depreciated property or filing Form 4797. National Tax Tools is not a tax advisory firm.