Depreciation Recapture, Explained
Why the depreciation you claimed for years can come back when you sell.
What it is
Each year you owned a rental, you likely deducted depreciation. When you sell, the IRS 'recaptures' much of that benefit by taxing the portion of the gain attributable to depreciation, at a federal rate of up to 25%.
Why it surprises people
Long-time owners may have depreciated much of the building's value, so recapture can be a large share of the total tax, even if the property didn't appreciate much.
How a 1031 exchange affects it
A qualifying exchange can defer recapture along with capital gains. Consult your tax advisor about your specific numbers.
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