Depreciation Recapture

Depreciation recapture is the taxable income earned by the sale of depreciated real estate assets. This income must be reported as ordinary income for tax purposes. Depreciation recapture is evaluated when and if the sale price of an asset is greater than the tax basis or adjusted cost basis. Therefore, depreciation recapture is the taxable income that is earned when a property is sold off at a price that is greater than its depreciated price.

 

Depreciation recapture allows the IRS to collect taxes on the sale of a commercial asset that the taxpayer had used prior to balancing taxable income.

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