Question 1

How is depreciation recapture taxed?

Accepted Answer

At a flat 25% federal rate (the §1250 rate), on the total depreciation you claimed or were entitled to claim — whichever is more. It's calculated first, before any other exclusion touches the remaining gain, and it applies even if you didn't actually deduct the depreciation on your returns.

Question 2

Do I still owe recapture if it was my primary residence?

Accepted Answer

Yes, for any period the property was a rental. The §121 exclusion (up to $250,000 single / $500,000 married) never covers depreciation recapture — only the portion of the gain above the recapture amount.

Question 3

What is the net investment income tax (NIIT)?

Accepted Answer

A 3.8% surtax on investment income — including capital gains — once your modified adjusted gross income crosses $200,000 (single) or $250,000 (married filing jointly). It stacks on top of federal capital-gains tax, not instead of it.

Question 4

Can I avoid this tax entirely?

Accepted Answer

A 1031 exchange defers the gain (and the recapture) by rolling proceeds into a replacement property, rather than eliminating the tax — talk to a qualified intermediary and a CPA well before you list. Selling on an installment note (see the installment-sale calculator) spreads the tax over time instead of eliminating it.

What will I actually owe in taxes when I sell this rental?