Depreciation Recapture
Also called: recapture tax, section 1250 recapture
Depreciation recapture taxes back the depreciation deductions you claimed when you sell the asset, at rates up to 25% for real estate. It exists because depreciation lowered your cost basis, inflating the gain — you got a deduction against ordinary income and would otherwise pay only capital gains on the reversal. It applies whether or not you actually claimed the depreciation, which catches out landlords who skipped it.