They come from one gain
When you sell a rental at a profit, the IRS divides the gain into two buckets: the part equal to depreciation you claimed (recapture) and everything above it (capital gain).
Different rates
The recapture portion is unrecaptured Section 1250 gain, taxed at up to 25%. The remaining capital gain is taxed at 0%, 15%, or 20% depending on your income — usually lower.
Why it matters
Because recapture is taxed higher, the more depreciation you claimed, the larger the higher-taxed slice. Deferring with a 1031 exchange postpones both.
Frequently asked questions
Is depreciation recapture the same as capital gains?
No. Recapture (up to 25%) covers the depreciation portion; capital gains (0/15/20%) covers the rest of the profit.
Which is taxed more?
Usually recapture, at up to 25%, versus 0–20% for long-term capital gains.
Sources
- IRS Topic No. 409 — Capital Gains and Losses
- IRS Publication 544 — Sales and Other Dispositions of Assets
- IRS Publication 946 — How to Depreciate Property
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.