Depreciation Recapture
The portion of gain on sale of depreciated property that is taxed at higher rates rather than long-term capital gain rates, recovering previously claimed depreciation deductions.
Detailed Explanation
Section 1245 recapture applies to depreciable personal property and is taxed entirely as ordinary income up to the amount of prior depreciation. Section 1250 recapture applies to depreciable real property and is taxed at a maximum 25 percent unrecaptured Section 1250 gain rate. Recapture reduces the appeal of accelerated depreciation strategies on properties expected to be sold rather than 1031-exchanged or held until death (when stepped-up basis erases recapture exposure).
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Learn about Tax Planning & StrategyRelated Terms
Depreciation
The deduction of the cost of a tangible business asset over its useful life, reflecting wear, tear, or obsolescence.
Cost Segregation Study
An engineering-based analysis that reclassifies portions of a building into shorter-life property categories to accelerate depreciation deductions in the early years of ownership.
Like-Kind Exchange (Section 1031)
A tax-deferred exchange of investment or business real property for similar property under IRC Section 1031, deferring capital gains recognition.
Capital Gain
The profit realized from the sale of a capital asset such as stock, real estate, or cryptocurrency, taxed at preferential rates if held longer than one year.
Tax Basis
The amount of investment in an asset for tax purposes, used to determine gain or loss when the asset is sold or otherwise disposed of.
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