1. What is Depreciation Recapture?

Depreciation recapture is the gain realized from the sale of depreciable capital property that must be reported as ordinary income for tax purposes. It applies when you sell an asset for more than its adjusted cost basis.

2. How Is Depreciation Recapture Calculated?

The calculator uses the depreciation recapture formula:

Where:

• Depreciation Taken — Total depreciation claimed on the asset
• Tax Rate — Your ordinary income tax rate for recapture

Explanation: The IRS requires taxpayers to "recapture" part of the depreciation deductions they previously claimed when they sell the asset.

3. Importance of Calculating Recapture

Details: Proper calculation ensures accurate tax reporting and prevents underpayment penalties. Recapture is taxed as ordinary income, not capital gains.

4. Using the Calculator

Tips: Enter total depreciation taken in dollars and your applicable tax rate as a percentage. The calculator will determine your recapture tax liability.

5. Frequently Asked Questions (FAQ)

Q1: What types of assets are subject to recapture?
A: Most depreciable business assets including equipment, vehicles, and rental property improvements.

Q2: Is recapture always taxed as ordinary income?
A: Generally yes, though Section 1250 property may have partial capital gains treatment.

Q3: How does recapture differ from capital gains?
A: Recapture applies to depreciation deductions taken, while capital gains apply to the appreciation in value above original cost.

Q4: Can recapture be deferred?
A: Yes, through like-kind exchanges (1031 exchanges) or installment sales in some cases.

Q5: What if I sell at a loss?
A: No recapture applies if you sell for less than the adjusted basis (cost minus depreciation).