Depreciation Recapture and Rental Sale Tax Calculator

By Tom, CPA · Updated October 27, 2026

TL;DR: Selling a rental splits your gain in two. The part equal to depreciation is unrecaptured Section 1250 gain, taxed at your ordinary rate but no more than 25%. The rest is long-term capital gain at 0%, 15% or 20%. The 3.8% NIIT and state tax may apply on top. This calculator estimates each piece.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Depreciation lowers your taxes every year you own a rental, then sends part of the bill when you sell. Knowing the exit tax before you list the property helps you decide between selling, a 1031 exchange, or holding. Enter your numbers below; the explanation follows.

CPA Warning Label: Depreciation "allowable" reduces basis even if you never claimed it. Suspended passive losses, installment sales, 1031 exchanges, Section 121 exclusions and AMT are not modeled.

How the calculation works

1. Adjusted basis = original cost (land and building) + capital improvements - depreciation allowed or allowable (IRS Publication 544 and Publication 551).
2. Amount realized = sale price - selling costs. Gain = amount realized - adjusted basis.
3. Unrecaptured Section 1250 gain is the smaller of total gain or depreciation taken. It is taxed at your ordinary rate, capped at 25% (IRS Topic 409).
4. Remaining gain is long-term capital gain if you held over a year. For 2026, the 0% rate applies up to $98,900 of taxable income for joint filers and $49,450 for single filers, and 15% up to $613,700 joint and $545,500 single, with 20% above (Rev. Proc. 2025-32). Pick the rate that fits your taxable income; a large gain can straddle brackets.
5. NIIT of 3.8% applies to the gain if modified AGI exceeds $200,000 single or $250,000 joint, unless the rental is a trade or business in which you materially participate or qualify as a real estate professional. Those thresholds are not inflation-indexed.
6. State tax is a flat rate on the gain here; real state rules vary.

Illustration

Illustration: Default inputs: sale price $400,000; selling costs $24,000; original basis $250,000; improvements $20,000; depreciation $60,000; 24% bracket; 15% capital gains; no NIIT; 5% state.

• Adjusted basis: $250,000 + $20,000 - $60,000 = $210,000.
• Amount realized: $376,000. Gain: $166,000.
• Unrecaptured 1250 gain: $60,000 at 24% = $14,400.
• Remaining capital gain: $106,000 at 15% = $15,900.
• State: $166,000 x 5% = $8,300.
• Total: $38,600. Cash after tax before paying off the mortgage: $337,400.

If the sale price were $235,000, the gain would be just $1,000, all of it unrecaptured 1250 gain, and the capital gain portion would be zero.

Limits of this estimate

The calculator applies one rate to each layer of gain. In reality, a large sale can push you through several brackets, and the gain itself raises your taxable income, which can move part of it from 0% to 15% or 15% to 20%. It does not model suspended passive losses, Section 1245 recapture on personal property from a cost segregation study (taxed as ordinary income), the Section 121 exclusion for a former home, AMT or state-specific rules. Treat the result as a planning range and confirm with a full return projection.

Allowed or allowable

Basis is reduced by depreciation you were entitled to take, even if you skipped it (Publication 544). Skipping depreciation does not avoid recapture; it just loses the deduction. If you missed years, a Form 3115 accounting method change can catch up the missed amount before you sell. See the catch-up depreciation guide.

Ways to reduce or defer the tax

• 1031 exchange: defers gain, including the depreciation portion, when you reinvest in like-kind real property (IRS like-kind exchange guidance).
• Installment sale: spreads capital gain over the years payments arrive, but depreciation recapture under Section 1245 is recognized in the year of sale; unrecaptured 1250 gain is taken first from payments (Publication 537).
• Suspended passive losses are freed on a fully taxable sale and offset ordinary income, which can make the effective rate much lower than this calculator shows.
• Low-income years: selling in a year with little other income may put more of the gain in the 0% bracket.
• Hold until death: heirs generally get a stepped-up basis, eliminating both the recapture and the gain. Estate rules, including the $15 million 2026 exclusion, are separate.

Each comes with its own requirements and audit risk; document basis, improvements and depreciation carefully.