abstract:Depreciation recapture is the USA Internal Revenue Service (IRS) procedure for collecting income tax on a gain realized by a taxpayer when the taxpayer disposes of an asset that had previously provided an offset to ordinary income for the taxpayer through depreciation. In other words, because the IRS allows a taxpayer to deduct the depreciation of an asset from the taxpayer’s ordinary income, the taxpayer has to report any gain from the disposal of the asset (up to the recomputed basis) as ordinary income, not as a capital gain.
Older couples who thought they were building a secure nest egg are discovering that a chunk of the equity they thought they had will be eaten up IRS depreciationrecapture rules that impose a tax on the accumulated depreciation deductions they took for all those years.
It can handle a sale, which is complicated because your gain will include not just capital gain but a recapture of depreciation and an unsuspension of suspended losses.