◈ GLOSSARY · REAL ESTATE
Depreciation Recapture.
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
When you own rental property you get to deduct depreciation each year against rental income — a real tax break. But when you sell, the IRS 'recaptures' those deductions and taxes them at up to 25%, separate from your regular capital gains. It's not a punishment; it's the IRS getting back the tax break you took. A 1031 exchange or holding until death (stepped-up basis) defers it.
◈ IN PRACTICE
Example
You bought a rental for $275,000 and depreciated $50,000 over 10 years. You sell for $400,000. Depreciation recapture tax: up to 25% × $50,000 = $12,500. The rest of the gain is taxed at long-term capital gains rates.
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