Depreciation Recapture

Depreciation Recapture

Depreciation Recapture is used.

when personal property is sold at a gain, the gain is ordinary income to the extent of depreciation previously deducted; when real property is sold at a gain and accelerated depreciation has been claimed, the taxpayer may be required to pay a tax at the ordinary rate to the extent of the excess accelerated depreciation. Excess depreciation on residential real estate after 1980 is recaptured; all depreciation on commercial property after 1980 is recaptured, when an accelerated method was used, under Former IRC (check if this IRC provision is current here) §1250.

Note: The importance of depreciation recapture for real estate was minimized by the Tax Reform Act of 1986, which mandated the straight-line depreciation for buildings bought after 1986. See Former IRC (check if this IRC provision is current here) §§1245 and 1250.

See Depreciation in the United States Encyclopedia of Law and Depreciation in the World Encyclopedia of Law.

Description and Definition of Depreciation Recapture

An amount of prior depreciation that must be recaptured as ordinary income upon the sale of the property. Recapture is computed on Form 4797.


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