Depreciation Recapture Calculator: Estimate Your Tax at Sale
Recapture is the tax you pay back on accelerated depreciation when you sell. Section 1245 recapture on 5, 7, and 15-year personal property is taxed at ordinary rates. Unrecaptured Section 1250 gain on real property is capped at 25%. A 1031 exchange defers (but does not eliminate) both.
Depreciation Recapture Calculator
Section 1245 recapture is taxed at ordinary rates. Unrecaptured Section 1250 is capped at 25%. LTCG is at the long-term capital gains rate. A 1031 exchange defers all of it.
How recapture works
When you dispose of property whose basis has been reduced by depreciation, the IRS recovers the tax benefit of that depreciation through recapture. Section 1245 applies to personal property and 15-year land improvements. Section 1250 applies to real property, with the unrecaptured portion capped at the 25% rate. Net Investment Income Tax adds 3.8% for taxpayers over the threshold.
Why cost seg creates recapture exposure
A cost segregation study reclassifies up to 40% of basis into shorter recovery periods for accelerated depreciation. That same reclassified basis becomes Section 1245 property subject to ordinary recapture rates at sale, which can be materially higher than the 25% cap on unrecaptured 1250 gain.
1031 exchange defers recapture
A like-kind exchange under IRC Section 1031 defers both Section 1245 recapture and unrecaptured 1250 gain. Basis carries over. The trap: when the replacement property is eventually sold without another exchange, accumulated depreciation across both properties is recaptured at the higher ordinary or 25% rates.
Zawwad Ul Sami, Founder
Zawwad Ul Sami is the founder of WeCostSeg, a founder-led cost segregation firm serving real estate investors across the US. He focuses on strategy, pricing, and the firm's overall direction.