Depreciation Recapture
En español: Recaptura de depreciación (depreciation recapture)
Depreciation recapture is the tax owed at sale on the depreciation an owner already deducted. Because each year's deduction lowered the property's tax basis, the gain at sale is larger, and the portion attributable to depreciation is taxed at its own rate rather than at the long-term capital gains rate.
- It applies to depreciation ALLOWED, not only depreciation taken. Not claiming it does not avoid the recapture.
- It is taxed separately from capital gain, and at its own maximum rate, so a single blended assumption understates the bill.
- A 1031 exchange defers it with the rest of the gain. That is a structure with deadlines, not a decision made at closing.
- Rates and rules change. This is orientation, and the number on a specific sale belongs with a CPA.
The same building held five years, on the depreciation the earlier example produced, at the rate that applies to this category of gain.
The deduction was real and so is the bill. Depreciation is a deferral, and the sale is when the deferral ends.
Tax mechanics change and individual situations differ. Treat this as orientation, not tax advice; the numbers on a specific transaction belong with a CPA or qualified intermediary.
Related terms
All termsDepreciation
Depreciation is the annual deduction the tax code allows for the wearing out of an income property's improvements.
Ownership1031 Exchange
A 1031 exchange lets a US investment-property owner sell and roll the proceeds into another investment property while deferring the capital gains tax a plain sale would trigger.
OwnershipCost Segregation
A cost segregation study breaks a building's purchase price into its components and assigns each one the recovery period the tax code actually allows.
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