Depreciation Recapture

Depreciation recapture is a tax provision that applies when you sell an asset, like real estate or equipment, for more than its initial purchase price. Over the years, you may have claimed depreciation deductions, which reduce your taxable income. When you sell the asset, the IRS wants to tax some of those deductions as ordinary income, rather than at the lower capital gains rate. This means that the amount equal to the depreciation you've already claimed may be taxed at a higher rate, making it important to consider when evaluating the overall tax consequences of a sale.