What is depreciation recapture?

The accounting at sale for depreciation deductions taken on an investment property during ownership. Depreciation reduced your taxable income and your basis while you owned it, which means a larger gain at sale, and the portion attributable to depreciation is treated differently.

What if I never claimed depreciation?

Recapture can apply based on depreciation that was allowable rather than only what was actually claimed, so an owner who never claimed it can still face the consequence. If you have owned a rental and never depreciated it, raise it with an accountant before selling.

How much will it cost me?

That depends on the amounts, the period and your circumstances, and it is a calculation rather than a rule of thumb. We do not state rates for this because it is not a real estate question. Your accountant models it, and the model is what you decide from.

Does it apply to a home I rented out for a while?

Depreciation claimed during the rental period is generally handled separately from the capital gains exclusion, and periods of non-qualified use have their own rules. This mixed situation is common in Palm Beach County and easy to get wrong without advice.

What records do I need?

Your purchase closing statement, depreciation schedules for every rental year, records of capital improvements, documentation of any personal-use periods, and prior tax returns. Sellers who kept these have a far easier conversation than those reconstructing from memory.

Should I find out before or after I sell?

Before, without question. The consequence can be large enough to change whether selling now makes sense, or whether to refinance or hold instead. Discovering it after closing removes every option you had.

Does Florida tax this?

Florida has no state personal income tax, so the consequence here is federal. Sellers who live in another state may face that state's treatment separately. As always, the absence of Florida income tax is not the same as no tax on the sale.

I am thinking of renting rather than selling. Does that matter?

Yes, and it is worth asking about first. Converting a residence into a rental has consequences at eventual sale, and the longer it is rented the more the position shifts. Decisions made for short-term cash flow can be expensive later.

Can you work out my after-tax proceeds?

We can give you an accurate valuation and a net sheet showing proceeds before tax, which is the input your accountant needs. We do not calculate recapture. An agent offering you an after-tax figure is guessing, and the guess is usually optimistic.

Do improvements reduce the recapture?

Capital improvements affect basis and are generally depreciated separately from the building, so they enter the calculation in their own way rather than simply offsetting recapture. Keep the invoices and permits, because your accountant needs them to do this properly.

What if I inherited the rental property?

Inherited property has a different basis rule, and depreciation claimed by a previous owner is treated differently from depreciation you claimed yourself. This combination is common and is exactly the kind of situation to model with an accountant before listing.

Does a loss on the sale remove the problem?

Not necessarily, because the depreciation component is accounted for separately from the overall gain or loss position. A seller who expects no tax because the property sold for less than they paid can still face a consequence, which is why the modelling matters.

Does a short ownership period reduce it?

Less depreciation accrues over a shorter period, so the amount involved is usually smaller. The treatment itself does not change with the holding period, and other consequences of a short hold may apply instead. Your accountant can compare the positions.

Depreciation recapture on an investment property sale

Depreciation recapture on an investment property sale is the part owners most often forget, and it produces the most unwelcome surprises. Depreciation reduced your taxable income while you owned the property. At sale, that benefit is accounted for. The detail that catches people is that it can apply whether or not you actually claimed it.

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Every situation on this page comes down to a number: what the property is worth and what you would net. We will work both out from recent sales near you, at no cost.

What depreciation did while you owned it

Depreciation lets an owner of investment property deduct part of the building's cost each year.

That deduction reduced taxable income during the ownership period.

It also reduced your basis in the property, year by year.

A lower basis means a larger gain when you sell, mechanically.

So the benefit received during ownership is reflected in the position at sale.

None of that is a penalty. It is the accounting catching up with the deductions.

The part that surprises people

Recapture can apply based on depreciation that was allowable, not only depreciation actually claimed.

An owner who never claimed it can therefore still face the consequence at sale.

That is the single most common unpleasant discovery in an investment property sale.

It particularly affects people who managed the property themselves without an accountant.

There may be routes to address unclaimed depreciation, which is very much an accountant's question.

If you have owned a rental and never depreciated it, raise that before selling rather than after.

How it sits alongside capital gain

Gain on an investment property sale is generally made up of more than one component.

The portion attributable to depreciation is treated differently from the rest.

The remainder is treated under the ordinary capital gain rules.

The split, and the rates, are technical and depend on circumstances.

We are not going to state rates here, because the calculation is not a real estate one.

Your accountant models this properly, and the model is what you should decide from.

Property that was sometimes a home

A property that was a primary residence for part of the period and a rental for another part has mixed treatment.

The capital gains exclusion may be available for part of the gain, subject to its own tests.

Depreciation claimed during the rental period is generally handled separately from that exclusion.

Periods of non-qualified use have their own rules.

This combination is common in Palm Beach County, where people rent a former home rather than sell it.

It is also one of the easiest situations to get wrong without advice.

Records you need

Your purchase closing statement, establishing the original basis.

Depreciation schedules from every year the property was a rental.

Records of capital improvements, which are depreciated separately from the building.

Documentation of any period the property was not rented or was used personally.

Prior tax returns covering the rental years.

Sellers who kept these have a far easier conversation than those reconstructing from memory.

Why this affects the selling decision

The tax consequence can be large enough to change whether selling now makes sense.

A seller expecting a certain net can find the after-tax figure materially different.

That is precisely the situation a 1031 exchange is sometimes used to address.

It can also affect whether to sell, refinance, or continue holding.

Knowing the number before listing rather than after closing is the whole point.

This is why the accountant conversation belongs before the marketing rather than after.

Deferral through an exchange

A 1031 exchange can defer the gain, including the depreciation component, into a replacement property.

Deferral is not forgiveness, and the position carries forward.

The exchange has strict deadlines and needs an intermediary in place before closing.

Whether it is worth the constraint depends on the size of the deferred amount.

There is a separate guide on exchanges in this cluster.

Your accountant compares the exchange against simply paying and buying freely.

Selling a property you once lived in

Many Florida owners move and rent out their former home rather than selling it.

That converts a residence into an investment property, with consequences at sale.

The longer it is rented, the more the position shifts away from the residence treatment.

Timing can matter here, sometimes significantly.

If you are considering renting rather than selling, ask about the eventual consequences first.

Decisions made for short-term cash flow reasons can be expensive at sale.

What we contribute

An accurate valuation and a written net sheet showing proceeds before tax.

The closing statement, which your accountant needs to complete the calculation.

A realistic timeline where an exchange or a date matters.

An honest view of what the property will sell for, which is the input to everything else.

We do not calculate recapture, state rates or advise on exchanges.

An agent who offers you a figure for this is guessing, and the guess is usually optimistic.

Before you list an investment property

Gather the depreciation schedules and prior returns for the rental years.

Get a valuation and a net sheet showing pre-tax proceeds.

Take both to your accountant and ask for the after-tax figure.

Ask specifically about recapture, about any period of personal use, and about exchange options.

Then decide whether to sell, and when, with the real number in front of you.

Ask us for the valuation and we will have it ready for that conversation.

This page explains how the money side of a Florida sale works so you can plan around it. It is not legal or tax advice. Tax on your sale belongs with an accountant, and the legal effect of your contract belongs with a Florida attorney. What we can give you is an accurate figure for what your home is worth and what you would net, which is the input both of those conversations need.

Frequently Asked Questions

What is depreciation recapture?: The accounting at sale for depreciation deductions taken on an investment property during ownership. Depreciation reduced your taxable income and your basis while you owned it, which means a larger gain at sale, and the portion attributable to depreciation is treated differently.
What if I never claimed depreciation?: Recapture can apply based on depreciation that was allowable rather than only what was actually claimed, so an owner who never claimed it can still face the consequence. If you have owned a rental and never depreciated it, raise it with an accountant before selling.
How much will it cost me?: That depends on the amounts, the period and your circumstances, and it is a calculation rather than a rule of thumb. We do not state rates for this because it is not a real estate question. Your accountant models it, and the model is what you decide from.
Does it apply to a home I rented out for a while?: Depreciation claimed during the rental period is generally handled separately from the capital gains exclusion, and periods of non-qualified use have their own rules. This mixed situation is common in Palm Beach County and easy to get wrong without advice.
Can I avoid it with a 1031 exchange?: An exchange can defer the gain including the depreciation component into a replacement property. Deferral is not forgiveness and the position carries forward. Whether the deadlines and constraints are worth it depends on the size of the amount deferred.
What records do I need?: Your purchase closing statement, depreciation schedules for every rental year, records of capital improvements, documentation of any personal-use periods, and prior tax returns. Sellers who kept these have a far easier conversation than those reconstructing from memory.
Should I find out before or after I sell?: Before, without question. The consequence can be large enough to change whether selling now makes sense, or whether to refinance or hold instead. Discovering it after closing removes every option you had.
Does Florida tax this?: Florida has no state personal income tax, so the consequence here is federal. Sellers who live in another state may face that state's treatment separately. As always, the absence of Florida income tax is not the same as no tax on the sale.
I am thinking of renting rather than selling. Does that matter?: Yes, and it is worth asking about first. Converting a residence into a rental has consequences at eventual sale, and the longer it is rented the more the position shifts. Decisions made for short-term cash flow can be expensive later.
Can you work out my after-tax proceeds?: We can give you an accurate valuation and a net sheet showing proceeds before tax, which is the input your accountant needs. We do not calculate recapture. An agent offering you an after-tax figure is guessing, and the guess is usually optimistic.
Do improvements reduce the recapture?: Capital improvements affect basis and are generally depreciated separately from the building, so they enter the calculation in their own way rather than simply offsetting recapture. Keep the invoices and permits, because your accountant needs them to do this properly.
What if I inherited the rental property?: Inherited property has a different basis rule, and depreciation claimed by a previous owner is treated differently from depreciation you claimed yourself. This combination is common and is exactly the kind of situation to model with an accountant before listing.
Does a loss on the sale remove the problem?: Not necessarily, because the depreciation component is accounted for separately from the overall gain or loss position. A seller who expects no tax because the property sold for less than they paid can still face a consequence, which is why the modelling matters.
Does a short ownership period reduce it?: Less depreciation accrues over a shorter period, so the amount involved is usually smaller. The treatment itself does not change with the holding period, and other consequences of a short hold may apply instead. Your accountant can compare the positions.

1031 exchange for investment property sellers

A 1031 exchange can defer gain on an investment property sale. What the structure requires, why the deadlines are unforgiving, and who has to be involved.

Capital gains tax on a home sale: the exclusion

Capital gains tax on a home sale: how the $250,000 and $500,000 exclusion works, the ownership and use tests, and what raises your basis.

FIRPTA: selling Florida property as a foreign seller

FIRPTA withholding applies when a foreign person sells US real property. The general rate, the residence exemption threshold, and who withholds.

Work out your numbers

What is my home worth?

A valuation built from closed sales in your own community, with the comparables named.

Estimate your net proceeds

Work the commission, documentary stamps and closing costs against your own number.

Current market reports

Prices, days on market and inventory for the counties we cover, updated monthly.

How we list a home

What we do between the listing agreement and the closing table, phase by phase.

Talk It Through

Tell us the situation and we will tell you what it is worth

Most of what makes a sale complicated is solvable once somebody has looked at the actual numbers. Onias Derilus is a licensed Florida broker and there is no cost to a conversation, whether you list this month or next year.

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