Depreciation recapture allows the IRS to reclaim depreciation deductions when you sell an asset. If you sell a depreciated asset for a profit, you must usually pay depreciation recapture. Depreciation recapture
How much depreciation is recaptured and treated as ordinary income depends on whether the property you sell is “Section 1245 property” or “Section 1250 property.” The names come from the tax code sections that establish the recapture rules for each type of property...
Section 1245 Depreciation Recapture Let's go through an example using Section 1245 property. Say you buy a commercial pizza oven for $50,000. Each year, you claim $5,000 in depreciation deductions, lowering your taxes. After five years, you've claimed $25,000 in total depreciation, making...
But when it's time to sell, depreciation recapture could complicate your tax situation.If you own a rental property, you're probably familiar with depreciation, which allows you to claim an annual tax deduction for the wear and tear on your property. But did you know that if you sell the...
Recapture of Depreciation upon the Disposition of Certain Depreciable Real and Personal PropertyBy Francis N. Millett, Jr.** The Revenue Acts of 1962 and 1964 introduced into the tax code two new sections which will have an important effect upon the sale, exchange or other disposition of ...
In that case, it’s typically the property’s value at the time of its conversion to a rental property. If you get too aggressive on estimating the building value and deducting for depreciation, remember that you’ll owe taxes on depreciation recapture when it comes time to sell!
Depreciation recapture for Section 1250 property Gain from the sale or other disposition of Section 1250 property is taxed as ordinary income to the extent there was “additional depreciation” allowed, or allowable, on the property. However, the amount taxed as ordinary income can...
Nonrecourse Financing of Real Property: Depreciation Allocation and Full Recapture to Minimize Deferral and Eliminate ConversionA recent Supreme Court interpretation of Rule 702 of the Federal Rules of Evidence has resulted in an inconsistent application of the rule among lower courts. Rule 702 allows ...