recapture of depreciation

recapture of depreciation

The extent to which the price received from selling a depreciated asset represents recovery of depreciation taken in prior years. For example, an asset purchased for $10,000, depreciated to a book value of $6,000, and sold for $9,000 would result in a recapture of $3,000. Also called depreciation recapture.

---

Recapture Of Depreciation

A procedure the IRS uses to maximize tax revenue from depreciating assets by requiring that the profit on the sale of a depreciating asset be reported as ordinary income, rather than capital gain. Because capital gains are taxed at a lower rate than most ordinary income, the IRS uses recapture of depreciation to make up for some of the tax revenue lost in the depreciating asset. Recapture of depreciation is assessed if the assets are sold for a price higher than their depreciated value. For example, suppose one buys a computer for $700 and after a year it has depreciated to $600. If one then sells the computer for $650, one has recaptured $50 worth of depreciation. This is taxed as ordinary income.

---

recapture of depreciation

Same as depreciation recapture.

---

Recapture of Depreciation

When depreciable property is sold, gain generally is taxed as ordinary income up to the amount of depreciation claimed (for personal property) and to the extent of the excess of accelerated depreciation claimed over straight-line depreciation that would have been allowed (real property). This ordinary income treatment is referred to as recapture.