The short answer
Unrecaptured section 1250 gain is the portion of long-term gain on depreciable real property that is attributable to depreciation already taken and not otherwise taxed as ordinary income, and federal law taxes it at a maximum rate of 25%. For most buildings placed in service after 1986 that means every dollar of straight-line depreciation, because straight-line buildings have no "additional depreciation" to recapture as ordinary income. The rest of the gain stays in the 0%, 15% and 20% brackets.
At a glance
| Maximum rate | 25%, or your ordinary rate if that is lower |
|---|---|
| What it measures | Gain equal to depreciation on real property that is not already ordinary income |
| Cap | Cannot exceed your net section 1231 gain for the year |
| Where it is figured | The Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions |
The term comes from the capital gains rate rules in section 1(h), not from section 1250 itself.
Section 1(h)(6) defines unrecaptured section 1250 gain as the long-term capital gain that would be ordinary income if section 1250 recaptured all depreciation, not just the excess over straight line, and at a 100% applicable percentage. Section 1(h)(1)(E) then taxes that slice at 25%. Section 1(h)(6)(B) caps it at the year's net section 1231 gain.
Section 1250 itself only turns "additional depreciation" into ordinary income. Publication 544 explains that residential rental and nonresidential real property placed in service after 1986 and held more than a year is depreciated straight line, so it has no additional depreciation. The depreciation is therefore not ordinary income, but it is not taxed at 20% either: it falls into this 25% layer. Our page on section 1250 property covers the ordinary-income side.
Worked example: a $120,000 depreciation layer taxed at 25%.
Hypothetical: a married couple filing jointly bought a rental for $500,000, $400,000 of it building, and took $120,000 of straight-line depreciation. They sell in 2026 for $700,000 net of selling costs. Adjusted basis is $380,000, so the gain is $320,000, of which $120,000 is unrecaptured section 1250 gain and $200,000 is ordinary long-term gain.
Assume $450,000 of other taxable income. Under section 1(h)(1), the $120,000 layer stacks on top of ordinary income and is taxed at 25%, or $30,000. The remaining $200,000 fills the 15% band up to the $613,700 joint threshold in Rev. Proc. 2025-32, so $43,700 is taxed at 15% and $156,300 at 20%, about $37,800. The 3.8% net investment income tax under section 1411 may apply on top. Run your own numbers with your CPA.
If the couple's ordinary income were lower, the part of the layer that fits under the top of the 24% bracket would be taxed at their ordinary rate instead of 25%. That is why the Schedule D instructions route the figure through a separate worksheet.
Where it bites: large depreciation, long holds and partial cash-outs in an exchange.
The layer grows every year you depreciate the building, so long-held rentals often carry more 25% gain than 20% gain. A completed section 1031 exchange defers it along with the rest of the gain, and the depreciation history carries into the replacement through its exchanged basis, as explained in does a 1031 defer depreciation recapture.
Boot is different. Gain recognized on cash or debt relief is reported on Form 4797 and Schedule D and can include this layer; see whether boot is taxed as recapture or capital gain first. For 2026 rate stacking with component depreciation, see the 2026 depreciation recapture tax rate.
Related questions
Is unrecaptured section 1250 gain always taxed at 25%?
No. Twenty-five percent is the ceiling. Section 1(h)(1) taxes the portion that falls within brackets below 25% at those ordinary rates, so lower-income sellers can pay less on it.
Does depreciation I never claimed count?
Publication 544 says the greater of depreciation allowed or allowable is generally used for recapture, with an exception when you can show the amount allowed was lower. See allowed or allowable depreciation and confirm the treatment with your CPA.
Can capital losses offset it?
Yes, through the Schedule D worksheets. Losses reduce net capital gain, and the Schedule D instructions apply that netting before the 25% layer is computed.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.