Calculate depreciation recapture tax when selling investment property
Original Property Purchase
Land cannot be depreciated
Major upgrades/renovations added to basis
Residential: (Building Value ÷ 27.5) × Years
Property Sale
Commissions, closing costs, etc.
Tax Rates
Federal rate capped at 25%
0%, 15%, or 20% based on income
Tax Analysis
Original Cost Basis
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Adjusted Cost Basis
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Net Sale Price
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Total Gain on Sale
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Depreciation Recapture
Depreciation to Recapture
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Recapture Tax (25%)
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Capital Gains Tax
Remaining Capital Gain
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Federal Capital Gains Tax
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State Capital Gains Tax
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Total Tax Liability
Depreciation Recapture Tax
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Capital Gains Tax
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TOTAL TAXES OWED
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💡 1031 Exchange Benefit
You can defer $0 in taxes by doing a 1031 exchange. This allows you to reinvest the full proceeds into a replacement property and continue growing your real estate portfolio tax-deferred.
About Depreciation Recapture: When you sell rental property, the IRS “recaptures” depreciation deductions you claimed and taxes them at a maximum rate of 25%. This is separate from capital gains tax. Your adjusted cost basis = original basis – depreciation taken. Any gain up to the amount of depreciation is taxed at the recapture rate; remaining gain is taxed at capital gains rates. A 1031 exchange can defer both depreciation recapture and capital gains taxes.