Depreciation Recapture
If the property was ever rented, this is one of the most important tax concepts on the sell side. It is also one of the least understood.
What depreciation is
The IRS lets owners of rental property deduct the building over 27.5 years. Those deductions reduce taxable rental income while you own the property.
What recapture means
When you sell, the IRS taxes back the depreciation you took, or were allowed to take, at a maximum 25% rate. This tax is separate from ordinary capital gains tax.
Why people get surprised
The IRS can still apply recapture even if you never actually claimed depreciation on your tax returns. In practice that means not claiming it does not protect you from the tax later.
When it matters
- The property was a full-time rental
- You lived there, then rented it out later
- A second home was rented for part of the year
How it interacts with the main-home exclusion
The Section 121 exclusion does not erase depreciation recapture. A seller can owe recapture tax even when the main capital gain is largely excluded.
zamindaro estimates depreciation recapture alongside the rest of the sell scenario so you know what you would actually keep.
Estimate the tax impact