Depreciation Recapture
When you sell, the IRS taxes back the depreciation you claimed — at 25%.
Definition
Depreciation giveth, recapture taketh away. When you sell a property, the IRS taxes your cumulative depreciation deductions at 25% (Section 1250). If you depreciated $50K over your ownership, you owe $12,500 in recapture tax at sale. This is why 1031 exchanges are popular — they defer recapture along with capital gains.
Formula
Recapture Tax = Total Depreciation Claimed × 25%
Related Terms
Depreciation
A tax deduction for the gradual wear of your rental property — 27.5 years for residential.
1031 Exchange (Like-Kind Exchange)
Sell one investment property and buy another to defer all capital gains taxes.
Section 179 Deduction
Elect to expense qualifying assets immediately instead of depreciating over time.
Educational content only. Consult a CPA or attorney for advice specific to your situation.