Estimate depreciation-related gain, remaining positive gain, tax under entered rate assumptions, and proceeds before debt payoff. This simplified U.S. straight-line real estate scenario assumes a holding period over one year. The automatic mode ignores land/building sale allocation and may overstate depreciation-related gain; the manual mode requires allocated depreciable-property amounts, excluding land. It does not determine tax classification, NIIT eligibility, losses or other return-level adjustments. The automatic rental mode approximates 27.5-year straight-line depreciation, omits mid-month timing and assumes improvements share the same service period; use allowed or allowable depreciation records when available. The default 25% is a maximum unrecaptured Section 1250 rate, not a universal tax rate. NIIT, if entered, is applied to the whole positive gain rather than testing income thresholds.

Automatic depreciation assumes all improvements share the building’s service period; ignores mid-month timing. Use allowed or allowable depreciation override when known.

Simplified U.S. straight-line real estate scenario held over one year; ignores land/building sale allocation. Not a filing calculation. Rates are editable assumptions. NIIT assumes the entire positive gain is eligible; income thresholds are not tested. Proceeds exclude mortgage payoff and state tax.

Automatic estimate caps at 27.5 years.

25% is a maximum federal unrecaptured §1250 rate, not a universal rate.

Depreciation and NIIT overrides

Blank uses the automatic estimate; zero is a valid override.

Depreciation Recapture Formula

The following formulas are commonly used to estimate the depreciation-related portion of gain (often called “depreciation recapture”) and the tax on that portion. In practice, the applicable tax treatment depends on the type of property (e.g., Section 1245 vs. real property and unrecaptured Section 1250 gain).

G & = SA - BA \ RA & = minbig(AD, max(0, G)big) \ RT & = RA × TR

Variables:

  • G is the realized gain ($)
  • SA is the sale amount / amount realized ($) (sale price net of selling costs, if known)
  • BA is the adjusted basis at the time of sale ($) (sometimes called “book value”)
  • AD is the accumulated depreciation ($) (allowed or allowable)
  • RA is the depreciation-related gain (recapture/unrecaptured 1250) ($)
  • RT is the estimated tax on the depreciation-related gain ($)
  • TR is the applicable tax rate (decimal) (if you have a percent, divide by 100)

To estimate the depreciation-related portion of gain, compute the realized gain and take the lesser of (1) accumulated depreciation and (2) the realized gain, but not less than zero. To estimate tax on that portion, multiply by the applicable rate.

What is Depreciation Recapture?

Depreciation recapture is a tax concept that can reclassify part of the gain from selling depreciable property as ordinary income (commonly for Section 1245 property) or as “unrecaptured Section 1250 gain” for most depreciated real property, generally up to the amount of depreciation previously claimed (or allowed/allowable). Any remaining gain may receive different treatment (such as Section 1231/long-term capital gain), depending on the facts.

How to Calculate Depreciation Recapture?

The following steps outline how to calculate depreciation recapture (in its most common simplified form).

  1. First, determine the amount realized on the sale (sale price minus selling costs, if any).
  2. Next, determine the adjusted basis of the asset at the time of sale.
  3. Next, determine the accumulated depreciation (allowed or allowable) taken on the asset.
  4. Compute the realized gain and the depreciation-related gain: Recapture/Unrecaptured 1250 = min(accumulated depreciation, max(0, amount realized − adjusted basis)).
  5. If estimating the tax on that portion, multiply the depreciation-related gain by the applicable rate and check your answer with the calculator above.

Example Problem : 

Use the following variables as an example problem to test your knowledge.

sale amount / amount realized ($) = 5000

adjusted basis at the time of sale ($) = 3000

accumulated depreciation ($) = 3000

recapture tax rate (decimal) = 0.25

Then, realized gain = 5000 − 3000 = 2000. Depreciation-related gain (recapture/unrecaptured 1250) = min(3000, 2000) = 2000. Estimated tax on that portion = 2000 × 0.25 = 500.