Depreciation recapture is a tax you may owe when you sell a property that you’ve been depreciating over time. The IRS lets you reduce your taxable income each year by depreciating rental property, but when you sell, they want some of that tax savings back. The recapture rate is typically 25% and applies to the portion of your gain tied to depreciation. It’s often overlooked, but it can hit hard if you’re not prepared. The good news: a 1031 exchange can defer depreciation recapture, allowing you to roll the full proceeds into a new property without triggering this tax.
