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Depreciation Recapture on Sale: Will I Have to Pay Back All My Tax . . . Depreciation Recapture on Sale: Key Facts Recapture Myth: You do not pay back all the tax savings; you pay tax on the portion of your sales gain equal to the depreciation taken Recapture Rate: Real Property (§1250): Depreciation is recaptured at a maximum rate of 25%
What Happens to Depreciation While Selling Real Estate? (2025) However, if you plan on selling the property, depreciation that’s been taken out must be recaptured and paid back to the government In addition, since depreciation is considered a form of deferred income, when the property sells, it becomes taxable
How Depreciation Recapture Works When Selling a Rental Property However, if the value of your property increases by the time you sell, the IRS wants to “recapture” the taxes you avoided through depreciation This is called depreciation recapture, and it affects your taxable gains from the sale
How to Understand Depreciation Recapture When Selling a Property Depreciation recapture is necessary whenever an asset’s selling price exceeds the property’s adjusted cost basis The owner pays the difference between the two by reporting it as ordinary income
How is Depreciation Recaptured Taxed on Rental? (w Examples) + FAQs Depreciation recapture on a rental property sale is taxed as a special capital gain at a federal rate of up to 25%, meaning you’ll pay back taxes on the depreciation deductions you claimed (or could have claimed) once you sell
Depreciation Recapture: Calculate Minimize Taxes on Rental Sales The IRS requires property owners to pay taxes on the depreciation they previously deducted when they sell the property This is called depreciation recapture and is taxed at up to 25% on the portion of the gain attributable to past depreciation deductions
Property (basis, sale of home, etc. ) 5 | Internal Revenue Service If you don't claim some or all of the depreciation deductions allowable under the law, you must still reduce the basis of the property by the amount allowable before determining your gain on the sale of the property