Depreciation recapture is the tax you pay when you sell a rental on the depreciation you deducted, or could have deducted, while you owned it. On a rental house that depreciation is unrecaptured section 1250 gain, taxed federally at your ordinary rate but never more than 25%, while appliances and carpet are recaptured as ordinary income and California taxes all of it as ordinary income. In the Elk Grove example below, $102,300 of building depreciation costs between 18% and 25% federally, depending on the owner's other income.
You own, or are about to sell, a rental house in the Sacramento area, and you've heard depreciation will be taxed when you sell. You want to know how much, and whether anything gets rid of it.
Depreciation recapture at a glance
| Residential rental building | Depreciated straight-line over 27.5 years (IRS Pub 527) |
|---|---|
| Basis reduction | Depreciation allowed or allowable, even if you never claimed it |
| Federal rate on the house's depreciation | Your ordinary rate, capped at 25% (unrecaptured section 1250 gain) |
| Appliances, carpet, furniture | Section 1245 property: recaptured as ordinary income |
| California | No separate rate: taxed with the rest of the gain as ordinary income |
| Where it's reported | IRS Form 4797, then Schedule D |
| What defers or removes it | A 1031 exchange defers it; death generally removes it |
What is depreciation recapture on a rental property?
Every year you rent the house out, the IRS lets you deduct part of the building's cost against the rent. That deduction lowers the tax on your rent and lowers your basis by the same amount. When you sell, the lower basis makes the gain bigger, and the tax code "recaptures" those earlier deductions by taxing that slice of the gain at its own rate.
27.5-year depreciation under IRS Publication 527
A residential rental building is depreciated with the straight-line method over 27.5 years under the general depreciation system, using a mid-month convention. Land is never depreciated, because land doesn't wear out. So the first step is splitting your purchase price between land and building; Publication 527 lets you use the ratio on your property tax assessment.
Allowed or allowable depreciation
Recapture is measured on depreciation "allowed or allowable." IRS Publication 551 says that if you didn't take depreciation, you still reduce your basis by the full amount you could have taken. A landlord who skipped it for years pays recapture on deductions they never got. If that's you, ask a CPA about catching up with Form 3115 before the sale, rather than after.
Depreciation on improvements counts too
A new roof, an addition or a replaced HVAC system is depreciated as its own 27.5-year property from the month it's placed in service. All of that depreciation joins the recapture total when you sell.
How depreciation recapture is taxed: the 25% cap
Two kinds of property sit inside a rental sale, and the IRS treats their depreciation differently.
Unrecaptured section 1250 gain on the house
The building is section 1250 property. Because residential rentals must use straight-line depreciation, there's no "additional depreciation" to recapture as ordinary income under Publication 544. Instead, the depreciation shows up as unrecaptured section 1250 gain, which IRS Topic 409 taxes at a maximum of 25%. It's figured on the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions.
Ordinary rate or 25%, whichever is lower
The 25% is a ceiling. The worksheet taxes that slice at your regular rate when your regular rate is lower. A married couple whose income sits in the 12% or 22% bracket pays 12% or 22% on the part of the recapture that falls in those brackets. Only income above the 24% bracket pays the full 25%.
Section 1245 property: appliances and carpet
Publication 527 puts appliances, carpeting and furniture used in a rental into the 5-year class. Those items are section 1245 property, and gain on them is recaptured as ordinary income up to the depreciation taken, with no 25% cap. On a house sale it's usually a small number, because the buyer pays little for a used fridge.
Form 4797 reports the depreciation recapture
The sale of a rental goes on IRS Form 4797. Section 1245 recapture is figured in Part III and taxed as ordinary income. The rest of the gain flows to Schedule D as long-term capital gain, where the unrecaptured section 1250 portion is separated out.
Depreciation recapture example: an Elk Grove rental
Labelled assumptions, so you can follow the arithmetic. An owner bought an Elk Grove rental in mid-2011 for $250,000 and allocated $62,500 to land, leaving a $187,500 building. In 2016 they bought $6,000 of appliances and carpet, now fully depreciated. They sell in 2026 for $620,000, close to Elk Grove's typical value of $624,643 in Zillow's September 2026 data, with $36,000 of assumed selling costs. The buyer contract assigns $1,500 to the appliances.
| Step | Amount |
|---|---|
| Annual building depreciation ($187,500 / 27.5) | $6,818 |
| Building depreciation, about 15 years | $102,300 |
| Appliance and carpet depreciation | $6,000 |
| Adjusted basis ($256,000 cost less $108,300) | $147,700 |
| Amount realized ($620,000 less $36,000) | $584,000 |
| Total gain | $436,300 |
| Section 1245 recapture (appliances), ordinary income | $1,500 |
| Unrecaptured section 1250 gain, up to 25% | $102,300 |
| Remaining long-term capital gain | $332,500 |
Now the federal tax on the $102,300, using the 2026 joint brackets from IRS Rev. Proc. 2025-32, for three couples with different taxable income before the sale:
| Other taxable income | Tax on $102,300 of section 1250 gain | Effective rate |
|---|---|---|
| $60,000 | $18,576 | 18.2% |
| $150,000 | $23,354 | 22.8% |
| $450,000 | $25,575 | 25.0% |
Only the highest earner pays the full 25%. The $1,500 of appliance recapture adds between $180 and $480 at ordinary rates. The other $332,500 is taxed at the 0%, 15% or 20% capital gains rates, and the 3.8% net investment income tax can apply on top; the California capital gains guide walks through those lines.
Depreciation recapture in California
California has no 25% ceiling and no separate capital gains rate. The Franchise Tax Board taxes all capital gains as ordinary income, so the recaptured depreciation, the appliance recapture and the rest of the gain all go through the same brackets, from 1% to 12.3%, plus 1% on taxable income over $1 million.
California depreciation can differ from federal
FTB notes that your California adjusted basis may differ from the federal one because of depreciation methods and write-offs the state didn't follow. Most plain single-family rentals depreciated straight-line match, but check your California depreciation schedule, or the California gain may not equal the federal gain.
Form 593 counts depreciation at escrow
If you use the alternative withholding calculation on FTB Form 593 instead of the standard 3⅓% of the price, the form asks for your depreciation. If you don't know it, the instructions let you estimate it for withholding: the purchase price plus improvements, less land, divided by 27.5, times the years rented.
How to avoid or defer depreciation recapture
Holding the house longer doesn't shrink recapture; it grows every year you own it as a rental. Only a few things change the outcome.
A 1031 exchange defers depreciation recapture
In a qualifying like-kind exchange, the recapture rolls into the replacement property along with the rest of the gain. Any cash you take out (boot) is taxable, and Publication 544 notes it can be taxed as recapture first. The 45-day and 180-day rules are in the 1031 exchange guide.
Depreciation recapture ends at death
Under Publication 551, inherited property generally takes a basis equal to its value on the date of death. The heir starts fresh, so the depreciation the owner took is never recaptured. That's why some owners hold a rental for life, and why heirs who sell an inherited rental soon after the death often owe little tax.
Installment sales don't defer recapture
Publication 537 says depreciation recapture income must be reported in the year of sale, even if you receive no payment that year. Carrying the buyer's note spreads the capital gain, but the section 1245 recapture is due up front.
Section 121 doesn't cover rental depreciation
If the rental was once your home, the section 121 exclusion can cover part of the gain, but depreciation after May 6, 1997 is still taxed (Publication 523). The exclusion never reaches recapture.
Depreciation recapture checklist for Sacramento landlords
This is general information, not tax advice; ask a CPA before you price the sale. Gather:
- Every year's depreciation schedule (Form 4562) for the house, improvements and appliances.
- Your purchase closing statement and the land-building split you used.
- A list of improvements by year and cost.
- Years you rented and didn't claim depreciation, if any.
- Your expected 2026 income without the sale, which sets whether recapture costs 12%, 22%, 24% or 25%.
If the numbers say the tax isn't worth paying yet, whether to sell your rental at all is the next question. If they say sell, the site's guide to selling a Sacramento rental house covers pricing, tenants and timing.
To see what your depreciation adds to the bill, enter your total in the depreciation recapture calculator.
Depreciation recapture FAQs
Is depreciation recapture always taxed at 25%?
No. For a rental house, the depreciation is unrecaptured section 1250 gain, and 25% is the maximum federal rate. If your ordinary rate is lower, that part is taxed at your ordinary rate, so a couple in the 12% or 22% bracket pays 12% or 22% on the share that falls there. Appliances and carpet are different: they're recaptured as ordinary income with no cap.
What is the depreciation recapture tax rate in 2026?
Federally, depreciation on a rental building is taxed at your ordinary income rate up to a maximum of 25%. Section 1245 property such as appliances is taxed at your full ordinary rate, which in 2026 runs from 10% to 37%. The 3.8% net investment income tax can also apply. California taxes it as ordinary income at 1% to 12.3%, plus 1% over $1 million.
Does depreciation recapture ever go away?
Not by waiting. It grows every year you rent the house and depreciate it. A 1031 exchange defers it into the replacement property, where it carries forward. It generally goes away only at death, when heirs take a basis equal to the property's value on the date of death, so the depreciation the owner took is never taxed.
How can I avoid paying depreciation recapture taxes on my real estate?
You can defer it with a 1031 exchange into another investment property, keeping the full sale proceeds in the exchange. Holding the property until death removes it for your heirs through the stepped-up basis. An installment sale doesn't help with recapture income, and the section 121 home-sale exclusion doesn't cover depreciation taken after May 6, 1997.
What happens when you sell a fully depreciated rental property?
After 27.5 years the building's basis is zero, so the whole building cost you depreciated is unrecaptured section 1250 gain, taxed at up to 25%. Your remaining basis is the land plus any improvements still being depreciated. Everything you receive above that basis, after selling costs, is gain, and California taxes all of it as ordinary income.
Do I owe depreciation recapture if I never claimed depreciation?
Yes. The IRS reduces your basis by depreciation allowed or allowable, meaning the amount you could have taken even if you didn't. You'd pay recapture on deductions you never got. A CPA can often claim the missed depreciation before the sale with Form 3115, a change in accounting method, so you at least get the deductions.
How do you calculate depreciation recapture on a rental property?
Add up the depreciation allowed or allowable on the building and improvements; that's the unrecaptured section 1250 gain, limited to your total gain. Separately, the gain on appliances and carpet up to their depreciation is section 1245 recapture. Report both on Form 4797. In the Elk Grove example, that's $102,300 of section 1250 gain and $1,500 of section 1245 recapture.
Sources
- IRS Publication 527: Residential rental property (27.5-year recovery, 5-year appliances and carpet)
- IRS Publication 544: Sales and other dispositions of assets (sections 1245 and 1250, Form 4797)
- IRS Publication 551: Basis of assets (allowed or allowable, inherited basis)
- IRS Publication 537: Installment sales (recapture in the year of sale)
- IRS Publication 523: Selling your home
- IRS Topic 409: Capital gains and losses (25% maximum)
- IRS Rev. Proc. 2025-32: 2026 tax rate tables
- IRS Publication 946: How to depreciate property (Form 3115 for missed depreciation)
- IRS Instructions for Form 4797
- FTB: Capital gains and losses
- FTB: 2025 California tax rate schedules
- FTB: 2025 Form 3840 instructions (California basis may differ)
- FTB: 2026 Form 593 instructions (estimating depreciation)
Reviewed by Justin Vierra
Justin reviewed this page for accuracy on October 28, 2026. Figures come from the sources listed above. Our research process.
Justin Vierra is a Sacramento Realtor® with GUIDE Real Estate and Principal of the Vierra Group who sells rental homes for their owners, with tenants in place or vacant. He spent six years in Midtown property management before he began selling homes in 2010.
- Since 2010Licensed in California, DRE #01880488
- 6 yearsManaging Midtown rental property before he sold homes
- 447Vierra Group team sales on Zillow, 26 in the past 12 months
- 440+Career sales, as reported by Justin
- Six years in property management: Midtown Sacramento: older buildings, multifamily property, maintenance and tenants
- Principal, Vierra Group: His team at GUIDE Real Estate, 3001 I Street, Sacramento
- Sacramento Real Producers: Top 250 agent for 2025, as reported by Justin
Realtor®, DRE #01880488. Vierra Group, GUIDE Real Estate, 3001 I St, Suite 200, Sacramento, CA 95816. General information, not legal, tax or financial advice.
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