Question 1

What is depreciation recapture?

Accepted Answer

Depreciation recapture is a tax provision that requires you to pay taxes on the gain from selling an asset that was previously depreciated. When you claim depreciation deductions, you reduce the asset's tax basis. If you sell the asset for more than its adjusted basis, the IRS 'recaptures' some or all of the depreciation benefit by taxing the gain.

Question 2

What is the depreciation recapture tax rate?

Accepted Answer

For Section 1245 property (equipment, vehicles, machinery), recaptured depreciation is taxed as ordinary income at your marginal tax rate (up to 37%). For Section 1250 property (real estate), unrecaptured depreciation is taxed at a maximum rate of 25%. Any gain above the original cost basis is taxed at long-term capital gains rates (0%, 15%, or 20%).

Question 3

What is the difference between Section 1245 and 1250 recapture?

Accepted Answer

Section 1245 applies to personal property (equipment, vehicles, furniture) and requires full recapture of all depreciation claimed, taxed as ordinary income. Section 1250 applies to real property (buildings) and only recaptures the excess of accelerated depreciation over straight-line (which is rare under current rules). Unrecaptured Section 1250 gain is taxed at max 25%.

Question 4

Can I avoid depreciation recapture?

Accepted Answer

You can defer recapture through a 1031 like-kind exchange (for real property only), which postpones the tax until you eventually sell without exchanging. Upon death, your heirs receive a stepped-up basis, eliminating recapture entirely. Installment sales can spread the tax over multiple years. There is no way to permanently avoid recapture on personal property except through the stepped-up basis at death.

Question 5

Does depreciation recapture apply if I sell at a loss?

Accepted Answer

No. Depreciation recapture only applies when you sell for more than the asset's adjusted basis (original cost minus accumulated depreciation). If you sell at a loss (below adjusted basis), there is no recapture. Instead, you may be able to claim an ordinary loss deduction under Section 1231 for business assets held more than one year.

Depreciation Recapture Calculator

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Depreciation Recapture Calculator

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Depreciation Recapture Calculator

Frequently Asked Questions

1What is depreciation recapture?

2What is the depreciation recapture tax rate?

3What is the difference between Section 1245 and 1250 recapture?

4Can I avoid depreciation recapture?

5Does depreciation recapture apply if I sell at a loss?

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Depreciation Recapture Calculator

Frequently Asked Questions

1What is depreciation recapture?

2What is the depreciation recapture tax rate?

3What is the difference between Section 1245 and 1250 recapture?

4Can I avoid depreciation recapture?

5Does depreciation recapture apply if I sell at a loss?

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