Depreciation recapture is the rule that claws back prior depreciation deductions when you sell a depreciated asset at a gain. Deductions taken under MACRS, Section 179, or bonus depreciation reduce the asset's basis, and at sale, gain up to the amount of that depreciation is taxed at higher rates than long-term capital gain. It applies to anyone who has depreciated business equipment, vehicles, real estate, or a home office, which includes most self-employed people whether they realize it or not.
Section 1245 versus Section 1250
For personal property (equipment, cameras, computers, vehicles, furniture: Section 1245 property), gain on sale is ordinary income up to the total depreciation taken, including Section 179 expensing and bonus depreciation. Only gain above the original cost is capital gain. For buildings (Section 1250 property) depreciated straight-line, prior depreciation is not recaptured as ordinary income; instead, the gain attributable to it, called unrecaptured Section 1250 gain, is taxed at a maximum 25% rate rather than the 0%, 15%, or 20% capital gain rates. Both computations run through Form 4797 in the year of sale.
The mechanics are all about adjusted basis. Buy a $10,000 machine, expense it fully with bonus depreciation, and its basis is zero; sell it for $6,000 and the entire $6,000 is Section 1245 ordinary income. The code also uses depreciation "allowed or allowable": your basis is reduced by the depreciation you were entitled to claim even if you never claimed it, so skipping depreciation does not avoid recapture, it just wastes the deduction (a missed-depreciation problem can often be repaired with an accounting method change before sale).
Recapture is why accelerated depreciation is a deferral, not an exclusion. The real benefit is the time value of money plus any rate difference between the year you deducted and the year you sell.
2026 figures
Unrecaptured Section 1250 gain is capped at a 25% rate, a statutory figure that does not change with inflation, and Section 1245 recapture is taxed at ordinary rates, which top out at 37% in 2026. Bonus depreciation was restored to 100% by the 2025 legislation for property acquired after January 19, 2025, which means recapture exposure on newly expensed assets now equals their full cost. The same legislation raised the Section 179 expensing cap to $2,500,000, with the phase-out beginning at $4,000,000 of purchases, for tax years beginning after 2024, indexed thereafter. Standard mileage users accumulate depreciation too: the standard mileage rate includes a per-mile depreciation component the IRS publishes each year (30 cents per mile for 2024; check the current-year notice) that quietly reduces the vehicle's basis with every business mile.
For creators and the self-employed
Cameras, lighting, computers, drones, and edit workstations expensed at 100% in the year of purchase are the classic setup. When you sell gear on the used market, trade up, or liquidate a studio, the proceeds are almost entirely gain because basis is near zero, and that gain is ordinary income on Form 4797. The one mercy: gain from selling business assets is not self-employment income. It bypasses Schedule C and Schedule SE, so there is no 15.3% self-employment tax on it, but it still belongs in your Form 1040-ES estimate for the quarter of the sale.
Vehicles and other listed property carry a second trigger that involves no sale at all: if business use drops to 50% or less in any year during the recovery period, the Section 179 and accelerated depreciation you claimed beyond straight-line is recaptured as income that year. A creator who expenses a vehicle at 80% business use and then scales back to mostly personal driving owes tax on the excess with no cash coming in.
The home office deduction has its own tail. Depreciation claimed, or merely allowable, on the office portion of your home after May 6, 1997 is carved out of the Section 121 home sale exclusion: sell the house at a gain and that slice returns as unrecaptured Section 1250 gain at up to 25%. The simplified method ($5 per square foot) involves no depreciation, which is exactly why some people choose it.
Mistakes that cost money
Expensing everything and forgetting the exit: 100% bonus depreciation feels free until an upgrade cycle turns every sale into ordinary income; plan the sale year's estimate or the April bill surprises you.
Not keeping depreciation schedules: without them you cannot compute basis at sale, and "allowed or allowable" means the IRS assumes the depreciation happened whether you tracked it or not.
Assuming a trade-in defers the gain: like-kind exchange treatment for personal property ended after 2017, so a camera or vehicle trade-in is a taxable sale plus a purchase, even when no cash changes hands.
Letting business use slide below 50% on listed property: the recapture arrives in that year with no sale proceeds to pay it.
Ignoring the home office slice at a home sale: the exclusion covers the rest of the gain, but the depreciation portion is taxable, and it is often discovered by the buyer's title year-end paperwork rather than planned for.
Ways to defer or erase it
For real estate, a Section 1031 exchange carries basis and the embedded recapture into the replacement property, deferring the tax indefinitely; personal property no longer qualifies. Death erases it entirely: heirs take a stepped-up basis and the depreciation history disappears. Installment sales help less than people expect, because Section 1245 recapture is taxed in full in the year of sale even when the buyer pays over many years, one of the classic traps in seller-financed equipment and business sales.
Before selling depreciated equipment, a building, or a home that housed an office, have the recapture computed in advance, because the planning options all close on the sale date.