The Door Count Massachusetts

Selling ยท Federal tax

The depreciation you took comes back at 25%

Every year you owned a rental you were entitled to depreciate the building. When you sell, the IRS takes that deduction back at up to 25%, and it does so whether or not you ever claimed it.

Depreciation is the deduction that makes rental property work on paper. You write off the building over 27.5 years, which shelters income while you own it. The catch arrives at the closing table.

On sale, the portion of your gain equal to the depreciation you took is unrecaptured Section 1250 gain, taxed at a federal maximum of 25% rather than at long-term capital gains rates. It is not a penalty. It is the deduction being settled up.

The part that catches people The IRS recaptures depreciation "allowed or allowable." If you owned a rental for fifteen years and never claimed a dollar of depreciation, you are still taxed as though you had. Not claiming it does not avoid it, it just means you paid for the deduction without ever using it.

How much it is

Straight-line over 27.5 years on the building only. Land is not depreciable, and is commonly assessed at 20–30% of the purchase price.

Quincy three-decker · bought 2004 for $245,000
Purchase price$245,000
Less land, at 20%−$49,000
Depreciable basis$196,000
Annual depreciation, over 27.5 years$7,127
After 22 years of ownership$156,800
Recapture tax at 25%$39,200

That $39,200 lands on top of the capital gains tax, the net investment income tax and the Massachusetts 5%. It is frequently the single line that surprises a seller most, because nothing about it appears on a listing agreement.

Massachusetts does not treat it separately

There is no distinct state recapture rate. Massachusetts taxes the whole gain, recapture included, at the flat 5% long-term rate, and that same gain counts toward the 4% surtax threshold.

What reduces it

  • A 1031 exchange defers recapture along with the rest of the gain. It is the only clean way to avoid it entirely while staying invested.
  • Capital improvements raise your basis, which reduces total gain. They do not reduce recapture itself, but they reduce what sits on top of it. Keep the receipts, a new roof is basis, a repaired one is not.
  • Dying while owning it. Heirs inherit at stepped-up basis and the recapture disappears entirely. A grim planning tool, but it is real and it is why some people never sell.

What does not help: selling at a loss does not create recapture, but recapture is capped at your actual gain, so a small gain means small recapture regardless of how much depreciation you took.

Common questions

What if I never claimed depreciation on my rental?

You are still taxed on it. The IRS recaptures depreciation allowed or allowable, meaning the amount you could have claimed. A CPA may be able to recover missed deductions with a Form 3115 change in accounting method.

Is depreciation recapture always 25%?

25% is the maximum federal rate for unrecaptured Section 1250 gain. If your ordinary income rate is lower than 25%, the recapture is taxed at that lower rate instead.

Does Massachusetts have its own recapture rate?

No. Massachusetts taxes the whole gain including recapture at its flat 5% long-term rate, and that gain counts toward the 4% surtax threshold.

Can a 1031 exchange defer recapture?

Yes. A properly structured like-kind exchange defers the entire gain, recapture included. It must be set up before the sale closes, with a qualified intermediary holding the proceeds.

Related

Sources & as-of date

  • IRC §1250, unrecaptured gain taxed at a maximum 25% federal rate.
  • 27.5-year straight-line residential depreciation schedule; land not depreciable.
  • Rates and thresholds current as of September 2026. Tax figures move annually , check the current year before relying on them.

Not tax or legal advice. This is published research, not a professional opinion on your situation. Take it to a CPA or an attorney before you act on it.