Why is a rental building different from equipment?

Buildings are depreciated straight-line, so there's usually no "extra" depreciation to recapture as ordinary income. Instead, the gain from that depreciation is taxed at up to 25%. Equipment recapture is taxed at your full ordinary rate.

It's the tax code's special category for business property held more than a year. Net gains get long-term capital gain rates and net losses are ordinary losses. The catch: net 1231 gains are ordinary income to the extent of 1231 losses in the past five years.

Can I avoid recapture?

Not by skipping depreciation. A like-kind exchange (real estate only, since 2018) defers it, and property you hold until death gets a stepped-up basis, which wipes it out.

What about a vehicle I used partly for personal driving?

The business share of the sale goes on Form 4797 with the recapture. The personal share goes on Schedule D — a gain is taxable, but a personal loss isn't deductible.

Taxes

Depreciation Recapture Calculator

Sold equipment or a building you depreciated? Split the gain the way Form 4797 does — recapture taxed as ordinary income, unrecaptured §1250 gain at up to 25%, and the rest as Section 1231 gain or loss.

Ben / Reviewed Sep 27, 2026 / v2.0.0

Your numbers

What you sold

Type of property

Original cost

Improvements you added

Business use

Owned it more than a year?

Depreciation

All depreciation taken

The sale

Sale price

Selling costs

For a rough tax estimate

Your income tax bracket

Your long-term capital gains rate

Results

Showing the numbers you calculated

Heads up

Net Section 1231 gains are taxed as ordinary income to the extent of net 1231 losses you deducted in the last five years.

Gain on the sale: $38,000.00; $58,000.00 realized − $20,000.00 adjusted basis
Taxed as ordinary income: $30,000.00; Depreciation recapture
Section 1231 gain: $8,000.00; Long-term capital gain rates, after netting
Rough federal tax on it: $8,400.00; Your rates applied to each piece
Adjusted basis: $20,000.00; Business cost − depreciation

How the gain is taxed

How the gain is taxed
Piece	Amount	How it's taxed
§1245 depreciation recapture	$30,000.00	Ordinary income
Section 1231 gain	$8,000.00	Long-term capital gain rates, after netting

What this does

Depreciation lowers your taxes while you own something. When you sell it for more than its depreciated value, the IRS takes some of that back — that's recapture. It's taxed as ordinary income (or, for buildings, at up to 25%), not at the lower capital gains rate.

This splits your gain into its pieces the way Form 4797 does, and gives a rough idea of the tax on each piece.

How the math works

First the gain:

adjusted basis = cost + improvements − all depreciation taken (including Section 179 and bonus)
gain = sale price − selling costs − adjusted basis

Then it's sorted, recapture first:

equipment:  ordinary income = the smaller of the gain or the depreciation; the rest is §1231 gain
buildings:  ordinary income = depreciation above straight-line
            unrecaptured §1250 gain = the straight-line depreciation (25% at most)
            the rest is §1231 gain

Section 1231 gain gets long-term capital gain rates. A Section 1231 loss is an ordinary loss — the best of both worlds.

Depreciation you were allowed but never claimed still counts. You can't skip depreciation to avoid recapture — though you can usually catch up the missed amount with Form 3115.

Check my math: a worked example

Equipment bought for $50,000 with $30,000 of depreciation, sold for $60,000 with $2,000 of selling costs.

Adjusted basis: $50,000.00 − $30,000.00 = $20,000.00.
Gain: $58,000.00 − $20,000.00 = $38,000.00.
§1245 depreciation recapture: $30,000.00 — ordinary income.
Section 1231 gain: $8,000.00 — long-term capital gain rates, after netting.
At a 24% bracket and 15% capital gains rate, that's roughly $8,400.00 of federal tax.

These numbers come straight from the calculator using its example inputs — if the math ever changes, this example changes with it.

Mistakes I see a lot

Leaving Section 179 and bonus depreciation out of "depreciation taken." They're recaptured like any other depreciation.
Thinking you avoided recapture by not claiming depreciation. It's figured on what was allowable.
Treating a loss as a capital loss. A loss on business property held over a year is usually an ordinary loss — better.
Assuming an installment sale defers recapture. Recapture is taxed in the year of sale, even if you get paid over years.
Forgetting the land. A building sale is usually a building and the land under it — only the building was depreciated.

Questions people ask

Why is a rental building different from equipment?: Buildings are depreciated straight-line, so there's usually no "extra" depreciation to recapture as ordinary income. Instead, the gain from that depreciation is taxed at up to 25%. Equipment recapture is taxed at your full ordinary rate.
What's Section 1231?: It's the tax code's special category for business property held more than a year. Net gains get long-term capital gain rates and net losses are ordinary losses. The catch: net 1231 gains are ordinary income to the extent of 1231 losses in the past five years.
Can I avoid recapture?: Not by skipping depreciation. A like-kind exchange (real estate only, since 2018) defers it, and property you hold until death gets a stepped-up basis, which wipes it out.
What about a vehicle I used partly for personal driving?: The business share of the sale goes on Form 4797 with the recapture. The personal share goes on Schedule D — a gain is taxable, but a personal loss isn't deductible.

Assumptions and limits

Individuals only (Form 4797). Corporations have an extra §291 recapture on buildings.
Depreciation means everything allowed or allowable, including Section 179 and bonus depreciation.
Equipment and other personal property (§1245): gain up to the depreciation taken is ordinary income; the rest is Section 1231 gain.
Buildings (§1250): depreciation above straight-line (bonus or accelerated) is ordinary income; the straight-line part is unrecaptured §1250 gain, taxed at no more than 25%; the rest is Section 1231 gain.
Held a year or less: the whole business gain or loss is ordinary (Form 4797, Part II).
A mixed-use asset is split by one business-use percentage: the business part goes on Form 4797, the personal part on Schedule D, and a personal loss isn't deductible.
The tax estimate is rough: your ordinary bracket and capital gains rate applied to each piece. It skips Section 1231 netting and the five-year lookback, the 3.8% net investment income tax (common on rentals), and state tax.

Ben’s notes on this

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Spot an error?

This is a public notebook and I do make mistakes. If a number looks off, tell me — I fix things and note the change in the changelog.

Disclaimer: Educational and planning use only. Results depend on what you enter and may not match your lender, your tax return, or professional accounting treatment. Informational content + opinions only — not tax/legal advice. Tax rules change and have exceptions this calculator doesn't cover — confirm current rules and your specific facts before relying on the result.