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Depreciation Recapture Calculator

Last updated: March 6, 2026
Reviewed by: LumoCalculator Team

Estimate taxable gain and split it into depreciation recapture and residual capital gain before disposing of rental property, equipment, or business vehicles. Use adjusted basis, sale proceeds, and rate assumptions to compare hold-vs-sell scenarios with a clearer tax-impact view.

Recapture Inputs

Set basis, depreciation, and sale assumptions to estimate recapture tax versus capital-gain tax.

Quick Presets

Asset and Tax Profile

Applicable recapture rule: Section 1250

Basis Inputs

Sale Inputs

Depreciation Recapture Results

Estimated total tax from disposition

Mixed Gain Profile

$41,200.00

After-tax proceeds: $616,800.00

Depreciation recapture amount

$100,000.00

Rate used: 25.00%

Residual capital gain

$108,000.00

Rate used: 15.00%

Total taxable gain

$208,000.00

Effective tax rate on gain

19.81%

Formula: Total Tax = (Recapture Amount x Recapture Rate) + (Residual Capital Gain x Capital Gains Rate)

Calculation line: ($100,000.00 x 25.00%) + ($108,000.00 x 15.00%) = $41,200.00

Recapture rule applied: Section 1250 (Real Estate)

Assessment

Estimated taxable gain is $208,000.00 with $100,000.00 (48.08%) in the recapture bucket.

Use the split between recapture tax and capital-gain tax to compare hold-vs-sell and reinvestment planning scenarios.

Detailed Breakdown

Original basis

$550,000.00

Adjusted basis

$450,000.00

Net sale proceeds

$658,000.00

Recapture section

Section 1250

Tax Component Breakdown

ComponentAmountRateTax
Depreciation Recapture (Section 1250)$100,000.0025.00%$25,000.00
Residual Long-Term Capital Gain$108,000.0015.00%$16,200.00

Reference Inputs and Interpretation

Reference inputHow it is usedWhy it matters
Adjusted basisAdjusted basis = original cost + improvements - depreciation claimed.An understated basis inflates taxable gain and can overstate recapture tax.
Recapture bucketRecapture amount is the lesser of total gain or cumulative depreciation.It isolates the portion taxed under recapture rules before capital-gain treatment.
Property classificationSection 1250 (real estate) and Section 1245 (equipment/vehicles) apply different recapture rates.Classification changes the tax-rate assumption and can materially shift total tax.
Net sale proceedsSelling costs are deducted from sale price before gain is computed.Ignoring commissions or closing costs can overstate taxable proceeds.

Step-by-step method

Step 1: Build original basis

$500,000.00 + $50,000.00

= $550,000.00

Step 2: Derive adjusted basis

$550,000.00 - $100,000.00

= $450,000.00

Step 3: Compute taxable gain

$700,000.00 - $42,000.00 - $450,000.00

= $208,000.00

Step 4: Split tax buckets

$100,000.00 at 25.00% and $108,000.00 at 15.00%

= $41,200.00

Sensitivity Snapshot

ScenarioNet ProceedsTaxable GainTotal TaxDelta vs Base
Base Case$658,000.00$208,000.00$41,200.00$0.00
Sale Price +5%$693,000.00$243,000.00$46,450.00+$5,250.00
Sale Price -5%$623,000.00$173,000.00$35,950.00-$5,250.00
Selling Costs +10%$653,800.00$203,800.00$40,570.00-$630.00

Related Calculators

Editorial & Review Information

Reviewed on: 2026-03-06

Published on: 2025-12-07

Author: LumoCalculator Editorial Team

What we checked: We re-checked adjusted-basis construction, recapture-bucket logic, Section 1245/1250 rate handling, scenario sensitivity outputs, and source accessibility.

Purpose and scope: This page supports educational transaction planning for asset dispositions where depreciation was claimed. It is not a filing engine and does not replace professional tax or legal review.

How to use this review: Validate cost basis, cumulative depreciation, and estimated selling costs first, then compare recapture-heavy versus appreciation-heavy outcomes before final sale timing decisions.

Formula and Standards Basis

Core tax split formula used in this calculator

Total Tax = (Recapture Amount x Recapture Rate) + (Residual Capital Gain x Capital Gains Rate)

Recapture amount is the lesser of total gain or cumulative depreciation. Residual capital gain is any gain left after recapture allocation.

Computation blockExpressionWhy it matters
Adjusted basisCost + Improvements - DepreciationBasis quality is the largest driver of gain and therefore total tax estimate accuracy.
Total gainSale Price - Selling Costs - Adjusted BasisSelling costs directly reduce taxable proceeds and should not be omitted.
Recapture bucketmin(Total Gain, Depreciation)This split determines what is taxed under recapture rules before capital-gain treatment.

Financial Disclaimer

This calculator is for educational planning only. Real tax outcomes can differ due to entity structure, state and local treatment, Net Investment Income Tax, passive-activity rules, prior-year filing adjustments, and transaction-specific legal details. Confirm final treatment with qualified professionals before filing or closing.

Use Scenarios

Pre-listing exit planning

Compare expected sale prices and commission assumptions to estimate after-tax proceeds before setting listing strategy.

Hold vs sell decision framing

Quantify recapture-heavy outcomes versus appreciation-heavy outcomes when evaluating whether to defer sale timing.

Exchange feasibility screening

Use estimated tax drag as an input when assessing whether deferral structures should be explored before transaction execution.

Formula Explanation

Step 1: Build original and adjusted basis

Start with original purchase price, add qualifying capital improvements, and subtract cumulative depreciation. This adjusted basis becomes the reference point for taxable gain.

Step 2: Compute net sale proceeds

Deduct commissions and other disposition costs from gross sale price to avoid overstating gain and tax exposure.

Step 3: Split gain into tax buckets

The recapture bucket is capped at depreciation claimed. Any gain beyond that bucket is treated as residual capital gain in this model.

Step 4: Apply rates and compare sensitivity

Apply recapture rate and capital-gain rate assumptions, then test sale-price or cost scenarios to understand how quickly after-tax proceeds can shift.

Example Cases

Case 1: Residential rental disposition

Inputs

  • Cost: $500,000; improvements: $50,000
  • Depreciation claimed: $100,000
  • Sale price: $700,000; selling costs: $42,000
  • Ordinary rate: 32%; capital-gain rate: 15%

Computed Results

  • Adjusted basis: $450,000
  • Total gain: $208,000
  • Recapture amount: $100,000 at 25%
  • Total tax: $41,200; after-tax proceeds: $616,800

Interpretation

Gain is split across both buckets, with recapture representing a meaningful but not dominant share.

Decision Hint

Validate depreciation history and selling-cost assumptions before using the estimate in pricing negotiations.

Case 2: Equipment-heavy exit

Inputs

  • Cost: $350,000; improvements: $20,000
  • Depreciation claimed: $250,000
  • Sale price: $290,000; selling costs: $9,000
  • Ordinary rate: 37%; capital-gain rate: 20%

Computed Results

  • Adjusted basis: $120,000
  • Total gain: $161,000
  • Recapture amount: $161,000 at 37%
  • Total tax: $59,570; after-tax proceeds: $221,430

Interpretation

This is recapture-heavy because gain remains within cumulative depreciation and is taxed at ordinary-rate assumptions.

Decision Hint

Stress-test sale value and timing because small pricing changes can materially affect after-tax cash recovery.

Case 3: Near-basis sale

Inputs

  • Cost: $600,000; improvements: $40,000
  • Depreciation claimed: $180,000
  • Sale price: $500,000; selling costs: $30,000
  • Ordinary rate: 24%; capital-gain rate: 15%

Computed Results

  • Adjusted basis: $460,000
  • Total gain: $10,000
  • Recapture amount: $10,000 at 24%
  • Total tax: $2,400; after-tax proceeds: $467,600

Interpretation

Tax drag is limited because sale value sits only slightly above adjusted basis.

Decision Hint

Confirm whether transaction costs or final sale adjustments could eliminate taxable gain entirely.

Boundary Conditions

Total depreciation should be cumulative and consistent with filed records, not a single-year amount.
Inputs assume one federal-style rate pair; state taxes and surtaxes are not included.
Land value is non-depreciable in many cases and should not be mixed into depreciable basis.
Selling-cost omissions can materially overstate gain and should be corrected before interpretation.
Model output does not capture installment-sale timing effects, entity elections, or passive-loss carryovers.
Use results for planning and scenario discussion, then confirm filing treatment with professional advisors.

Sources & References

Frequently Asked Questions

What is depreciation recapture in simple terms?
Depreciation recapture is the tax rule that reclassifies part of your sale gain into a recapture bucket tied to depreciation deductions you previously claimed. It prevents depreciation deductions from becoming a permanent untaxed benefit when the asset is sold at a gain.
What is the practical difference between Section 1245 and Section 1250?
Section 1245 generally covers depreciable personal property such as equipment and vehicles, where recapture is commonly taxed at ordinary income rates. Section 1250 generally covers depreciable real property, where unrecaptured gain is usually capped at a 25% federal rate. Classification materially changes estimated tax.
Does recapture apply if the sale has no taxable gain?
No. If net sale proceeds do not exceed adjusted basis, taxable gain is zero and recapture is not triggered in this model. You should still verify basis records and selling-cost assumptions before relying on a no-gain conclusion.
Why does adjusted basis matter so much?
Adjusted basis is the anchor for gain calculation. It is built from original cost plus capital improvements minus depreciation claimed. If basis is understated, gain and tax are overstated; if basis is overstated, the estimate can understate tax risk.
How does a 1031 exchange relate to recapture?
A qualifying 1031 exchange can defer gain recognition, including recapture amounts, rather than eliminate tax permanently. The deferred tax attributes typically carry into replacement property basis and must be tracked carefully.
Does this calculator include state taxes or NIIT?
No. The model focuses on a federal-style split between recapture and residual capital gain. State tax treatment, Net Investment Income Tax, passive-loss interaction, and entity-level adjustments are outside scope and should be modeled separately.
What are common input mistakes for recapture calculations?
Frequent mistakes include forgetting selling costs, mixing land value into depreciable basis, entering depreciation in annual instead of cumulative terms, and using a tax rate that does not match the modeled taxpayer profile.
Does this page provide legal or tax advice?
No. This is an educational planning tool. Use outputs as a scenario reference and confirm final filing treatment with qualified tax and legal professionals before transaction execution.