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Cost Seg Recapture Calculator
Cost segregation delivers front-loaded depreciation, but at sale the short-life portion (§1245) is recaptured at ordinary income rates — much higher than the 25% rate on 39-year building (§1250). This calculator computes the hit, broken out by §1245 and §1250, and compares to the no-cost-seg baseline.
Total recapture tax at sale
$222,600
§1245 recapture (short-life)
$177,600
§1250 recapture (building)
$45,000
Incremental recapture vs no cost seg
$177,600
How the math works
Cost seg reclassifies portions of a building from 39-year straight-line to 5, 7, or 15-year. The savings during hold are real, but at sale, §1245 recapture on the short-life portion is taxed at ordinary rates — often 37% federal. The 39-year building portion is §1250 at 25%.
1031 exchange defers all recapture. Hold-to-death with step-up basis eliminates recapture entirely. Cost seg makes the most sense when exit timing is flexible or a 1031 is planned.
How to Use
- Enter total depreciation taken on 5/7/15-year classifications.
- Enter what 39-year straight-line would have been over the same hold.
- Enter your ordinary, long-term capital gain, and §1250 rates.
- Read recapture tax at sale.
Frequently Asked Questions
Ordinary vs capital gain?
§1245 property (5-year and 7-year) recaptures as ordinary income — up to 37% federal plus state. §1250 building recaptures at a flat 25% federal. §1245 recapture is why cost seg hurts at taxable exit — not a reason to skip cost seg if 1031 or step-up is planned.
1031 exchange defer?
Yes. 1031 defers both §1245 and §1250 recapture. Cost seg + 1031 = free alpha. Without 1031, the short-term savings from cost seg can be largely given back at sale.
Step-up basis at death?
Eliminates all recapture. Property gets new basis = FMV at death. Heirs sell without any recapture. This is why high-net-worth investors hold forever and pass property to heirs.
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