Depreciation recapture when selling a Miami rental in 2026

Last updated: July 2026

If you own a Miami rental and are thinking about selling, the tax you may not have planned for is depreciation recapture. Each year you rent a residential property, the IRS lets you deduct part of the building's cost as depreciation, spread straight-line over 27.5 years [1]. Those deductions lower your taxable rental income while you hold the property, but they also lower your cost basis. When you sell, the accumulated depreciation is "recaptured" and taxed. For residential rental real estate, that recaptured amount is unrecaptured Section 1250 gain, taxed at a federal rate of up to 25 percent, separate from the long-term capital gains rate that applies to the rest of your profit [2].

The key point for underwriting a sale: depreciation is not optional at exit. Under the "allowed or allowable" rule, the IRS reduces your basis by the depreciation you could have claimed, even if you never claimed it [3]. So the recapture bill comes due whether or not you took the deductions. Below is how the mechanics work, a worked example for a Miami investor, and how a 1031 exchange defers the tax.

How residential rental depreciation works

Land does not wear out, so you cannot depreciate it. You depreciate only the building and certain improvements. For residential rental property placed in service today, the IRS uses the General Depreciation System with a 27.5-year recovery period and the straight-line method [1]. In practice, you split your purchase price between land and building, then deduct the building portion evenly over 27.5 years.

If a Miami property cost 700,000 dollars and a reasonable land-to-building allocation puts 200,000 dollars on the land and 500,000 dollars on the structure, your annual depreciation is roughly 500,000 divided by 27.5, or about 18,182 dollars a year. Each of those deductions reduces your adjusted basis in the property by the same amount.

What depreciation recapture is

Your gain on a sale is the amount you realize minus your adjusted basis. Because depreciation lowers basis year after year, it increases the gain you report at sale. The portion of that gain attributable to depreciation is treated differently from ordinary appreciation.

For real property depreciated straight-line, this is unrecaptured Section 1250 gain. It is still a capital gain, but it carries its own ceiling: a maximum federal rate of 25 percent, rather than the 0, 15, or 20 percent rates that apply to most long-term capital gains [2]. The actual rate is the lesser of 25 percent or your ordinary marginal rate, so investors in lower brackets can pay less than 25 percent on that slice.

The allowed-or-allowable rule

A common misconception is that skipping depreciation deductions avoids recapture. It does not. The IRS requires you to reduce basis by depreciation "allowed or allowable," meaning the greater of what you actually claimed or what you were entitled to claim [3]. If you never depreciated the property, you generally still reduce basis by the allowable amount at sale, which means you can owe recapture without ever having received the deductions. This is why claiming depreciation each year, and correcting missed depreciation through the proper IRS procedure, matters. A CPA can advise on a Form 3115 change of accounting method if you missed prior-year depreciation.

How the 25 percent rate interacts with capital gains

At sale, your total long-term gain is split into two buckets. The first bucket equals the accumulated depreciation and is taxed as unrecaptured Section 1250 gain at up to 25 percent. The second bucket is the remaining appreciation above your original cost, taxed at the standard long-term capital gains rate of 0, 15, or 20 percent depending on your income [2]. Higher-income investors may also owe an additional net investment income tax on top of these amounts, and Florida imposes no state income tax, so your exposure here is federal. Confirm your specific brackets and any surtax with a CPA.

A worked example for a Miami investor

Assume the 700,000-dollar Miami rental above, held for 10 years, with the land and building split described earlier.

Annual depreciation: about 18,182 dollars.
Accumulated depreciation over 10 years: about 181,818 dollars.
Adjusted basis at sale: 700,000 minus 181,818, or about 518,182 dollars.
Sale price: 950,000 dollars (ignore selling costs to keep the math clean).
Total long-term gain: 950,000 minus 518,182, or about 431,818 dollars.

That total gain divides into two parts. The unrecaptured Section 1250 portion equals the 181,818 dollars of depreciation, taxed at up to 25 percent, which is up to roughly 45,455 dollars [2]. The remaining 250,000 dollars is appreciation above original cost, taxed at the long-term capital gains rate that fits your income [2]. The exact totals depend on your bracket, selling costs, and any net investment income tax, which is why this is an illustration rather than a quote. The structural lesson holds: recapture is a meaningful, separate line in your exit math, and it scales with how long you held and depreciated the property.

How a 1031 exchange defers the tax

A like-kind exchange under Section 1031 lets you defer both the capital gains and the depreciation recapture when you reinvest the proceeds into another investment or business real property. The deferral is not automatic. You generally must identify replacement property within 45 days of selling and close on it within 180 days, and the same taxpayer must be on both sides of the exchange [4]. The exchange is reported to the IRS on Form 8824 [4].

An exchange defers the tax rather than erasing it. Your deferred gain and depreciation carry over into the basis of the replacement property, so recapture can resurface on a later sale unless you keep exchanging or your estate steps up the basis. For a Miami investor rotating from a smaller rental into a larger one, an exchange can preserve capital that would otherwise go to recapture, but the deadlines are strict and the structure must be set up before you close. Work with a qualified intermediary and a CPA early.

If you are weighing a sale versus a hold or an exchange, it helps to start with the numbers on the property itself. You can request a current valuation at Gabriel's listing valuation page, review the guide to selling your Miami home, or read more investor explainers on the blog. None of this is tax advice; run your specific figures with a CPA before you act.

Frequently asked questions

Is depreciation recapture the same as capital gains tax?

No. Both are federal taxes triggered at sale, but they apply to different parts of the gain. Unrecaptured Section 1250 gain, the portion tied to prior depreciation, is taxed at up to 25 percent, while the remaining appreciation is taxed at the 0, 15, or 20 percent long-term capital gains rates [2].

Can I avoid recapture by never claiming depreciation?

Generally no. The "allowed or allowable" rule reduces your basis by the depreciation you could have claimed, whether or not you claimed it, so recapture can still apply at sale [3]. Skipping depreciation usually means you lose the yearly deduction and still face recapture. A CPA can help correct missed depreciation.

How long do I depreciate a residential rental in Miami?

Residential rental property is depreciated over 27.5 years using the straight-line method under the General Depreciation System, with only the building and qualifying improvements depreciable, not the land [1].

Does a 1031 exchange eliminate depreciation recapture?

It defers it, not eliminates it. A properly structured like-kind exchange postpones both capital gains and recapture, but the deferred amounts carry into your replacement property's basis and can be taxed on a future non-exchanged sale. The 45-day and 180-day deadlines apply [4].

Does Florida charge its own tax on this gain?

Florida has no state personal income tax, so the recapture and capital gains exposure discussed here is federal. Your federal bracket, filing status, and any net investment income tax still drive the total, so confirm the specifics with a CPA.

Gabriel

Sources

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Gabriel A. Moyers, PA. eXp Realty. Florida License #3407280. Equal Housing Opportunity. This article is general information as of July 2026 and is not legal, tax, or financial advice. Verify current figures against authoritative sources before acting.