What is depreciation recapture ?
Example of depreciation recapture.
- Purchase cost of house : $20,00,000
- Depreciation deductions claimed in 10 years : $500,000
- Sale value in 11 th year : $50,00,000
- Capital gains : $35,00,000
- Depreciation recapture is limited to the lesser of the gain or, the depreciation is previously taken. So,in the event a property is sold at a loss the depreciation recapture rules do not apply.
- The 25% depreciation recapture tax rate only applies to the portion of the gain attributable to real property and not attached other asset like furniture etc. The capital gains related to depreciation recapture those other assets would be taxed at the property owner’s ordinary income tax rates.