The short answer
Partly. For real property like a rental building (Section 1250), recapture is not taxed at full ordinary income rates — it's "unrecaptured Section 1250 gain," capped at a maximum 25%. For personal property (Section 1245) — equipment, appliances, fixtures — recapture is taxed at ordinary income rates, which can be higher.
The distinction matters because it determines the rate applied to the portion of your gain that came from depreciation deductions.
Why recapture exists at all
Depreciation lowers your ordinary taxable income each year you hold the property. When you sell, the IRS "recaptures" some of that benefit. Congress chose a middle path for real estate: instead of clawing it all back at ordinary rates, it caps the depreciation portion at 25%.
Section 1250 vs. Section 1245
Section 1250 (buildings): recapture limited to depreciation taken, taxed at up to 25%.
Section 1245 (personal property and cost-segregated components): recapture taxed at ordinary income rates. This is why accelerating depreciation with a cost segregation study can convert some future recapture into higher-taxed 1245 recapture.
Frequently asked questions
Is all depreciation recapture ordinary income?
No. Section 1245 (personal property) recapture is ordinary income; Section 1250 (real property) recapture is capped at a 25% rate.
What rate is unrecaptured Section 1250 gain?
A maximum of 25%, versus the 0/15/20% long-term capital gains rate on the rest of the gain.
Does cost segregation change this?
Yes — it reclassifies parts of a building into 1245 property, which can be recaptured at ordinary rates when you sell.
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.