§1250
Sec 1250 Tax Calc
IRS Form 4797 & Schedule D Real Estate Tax Modeling

Unrecaptured Section 1250 Gain Tax Calculator

Calculate the 25% federal depreciation recapture tax on real estate sales, separate building depreciation from capital appreciation, and model NIIT and state tax liabilities.

01. Property Sale & Basis

Commissions & escrow (~6%)
Roof, HVAC, additions

*Includes all depreciation claimed or allowable under MACRS straight-line.

02. Tax Brackets & State

0% (TX, FL) to 13.3% (CA)
Total Realized Gain
$271,000
Net Realized: $611k vs Basis: $340k
Unrecaptured §1250 Tax
$20,400
24% rate on $85,000 recapture
Total Combined Tax
$74,858
Effective Tax Rate: 27.6% of gain
Net After-Tax Proceeds
$536,142
Net sale proceeds minus taxes
Realized Gain Classification Breakdown $271,000 Total Gain
Sec 1250 Recapture $85k (31%)
True Capital Gain $186k (69%)
Unrecaptured §1250 (Max 25%): $85,000
Long-Term Capital Gain: $186,000
Itemized Tax Obligations
1. Federal Unrecaptured §1250 Tax (24%) $20,400
2. Federal Capital Gains Tax (15% on appreciation) $27,900
3. Net Investment Income Tax (NIIT 3.8%) $10,298
4. State Capital Gains & Recapture Tax (6.0%) $16,260
Total Tax Liability: $74,858
Section 1031 Exchange Tax Deferral Potential

By executing a qualified Section 1031 Like-Kind Exchange into replacement property, you can defer 100% of this $74,858 tax bill, reinvesting your entire gross equity into cash-flowing assets.

25%

The 25% Rate Ceiling

Under IRC § 1(h)(1)(E), depreciation recapture on real property is capped at 25%. However, if your regular marginal income bracket is lower (e.g. 12% or 22%), you pay your lower ordinary rate on the recapture amount.

§1245

Sec 1250 vs Sec 1245

While building straight-line depreciation is taxed at the 25% § 1250 rate, personal property (appliances, carpeting, cost segregation items) falls under Section 1245 and is taxed at full ordinary rates up to 37%!

3.8%

Net Investment Income Tax

Both the unrecaptured Section 1250 gain and regular capital gains are subject to the 3.8% NIIT under IRC § 1411 for high earners, bringing the maximum effective federal tax on recapture to 28.8%.

// TAX CODE FAQ

Frequently Asked Questions

Demystifying real estate depreciation recapture and IRS Form 4797.

What is unrecaptured Section 1250 gain? ↓
Unrecaptured Section 1250 gain represents the portion of taxable profit from selling real property that was previously offset by straight-line depreciation deductions. The IRS allowed you to write off the building's value over 27.5 years (residential) or 39 years (commercial) against your active rental income. When you sell the property at a profit, the IRS "recaptures" those tax savings by taxing the accumulated depreciation at a special federal rate of up to 25%.
What happens if I never claimed depreciation on my tax returns? ↓
Under IRC Section 1016(a)(2), basis must be reduced by the depreciation "allowed or allowable". Even if you never claimed a single dollar of depreciation on Schedule E, the IRS calculates your capital gain and depreciation recapture as if you did! To recover missed depreciation deductions before selling, consult a CPA to file IRS Form 3115 (Change in Accounting Method) under Revenue Procedure 2022-14 to take a Section 481(a) catch-up deduction.
How is the gain split between Section 1250 recapture and capital gain? ↓
Realized gain flows through a two-tiered waterfall:
  • Tier 1 (Recapture): Gain up to the total accumulated depreciation claimed is designated as Unrecaptured Section 1250 Gain (taxed up to 25%).
  • Tier 2 (True Appreciation): Any remaining profit exceeding the accumulated depreciation is treated as regular long-term capital gain (taxed at 0%, 15%, or 20%).
Where is unrecaptured Section 1250 gain reported on my tax return? ↓
The sale is initially reported on IRS Form 4797 (Sales of Business Property), Part I or Part III. The unrecaptured Section 1250 gain is then calculated using the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D, and transferred to Schedule D (Form 1040) Line 19.