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Depreciation Recapture

Posted on July 21, 2015 by Jeff Hobbs

What is Depreciation Recapture?

When a taxpayer purchases a tax-deductible asset for use over several years, the taxpayer can deduct a percentage of the asset’s value from his or her yearly taxable income over the life of the asset. (See IRC §§ 167, 168 and the IRS tables of class lives and recovery periods).  The Internal Revenue Service publishes specific depreciation schedules for different classes of assets.  These schedules tell a taxpayer what percentage of an asset’s value may be deducted each year and the number of years in which the deductions may be taken.  The values of these deductions are used to determine the asset’s recomputed basis at the time the taxpayer sells the asset. (See IRC § 1245(a)(2)(A)).

Source: Internal Revenue Service