How-to · 2026 federal estimate · Updated October 2, 2026
How is depreciation recapture taxed when you sell a rental?
Direct answer
Depreciation you already deducted comes back as unrecaptured Section 1250 gain. It is taxed at your ordinary rate, capped at 25%. The rest of a long-term gain uses 0%, 15%, or 20%. Section 121 cannot exclude that depreciation. On a $135,000 rental gain with $60,000 of depreciation and $80,000 of other income, federal tax is about $26,318.
Same gain, with and without depreciation
Single filer, five-year rental, $400,000 sale, $25,000 selling costs, $80,000 of other taxable income. The second row keeps the gain at $135,000 by using a $240,000 basis and no depreciation.
| Slice | With $60,000 depreciation | No depreciation |
|---|---|---|
| Recapture tax | $13,886 | $0 |
| Tax on the rest of the gain | $11,250 | $20,250 |
| 3.8% NIIT | $1,182 | $1,182 |
| Federal total | $26,318 | $21,432 |
At this income the depreciation is taxed at 22% and 24%, both under the 25% cap. State tax is not included.
When the 25% cap binds
The same rental and $60,000 of depreciation, with $250,000 of other taxable income, taxes the depreciation at 25% ($15,000), not at the 32% ordinary bracket. The remaining $75,000 is long-term gain at 15% ($11,250), plus $5,130 of NIIT. Federal total: $31,380.
A main home does not erase it
Single owner, home bought for $200,000, $40,000 of depreciation (a home office or rental years), sold for $500,000 after $20,000 of selling costs. The gain is $320,000. Section 121 excludes $250,000, and $70,000 stays taxable. Federal tax is $13,586, of which $9,086 is the depreciation slice.
Limits
- This is the unrecaptured Section 1250 rule for real property, not the ordinary-income recapture that applies to personal property.
- A converted rental can also lose part of the Section 121 exclusion for nonqualified use. This model does not allocate that.
- State tax, AMT, and capital-loss carryovers are not in these figures. Confirm the return with a tax professional.
Use the calculator
Sold before two years: the partial Section 121 exclusion. The full sale walkthrough: capital gains tax on a property sale. Run your own numbers in the real estate capital gains calculator.