Recapture Depreciation Calculator

Recapture depreciation is a tax aspect of selling property where the IRS recoups some or all of the depreciation deductions previously claimed. This is particularly relevant when a property is sold at a gain. Understanding recapture depreciation can help property owners plan better for tax obligations.

Historical Background

Depreciation allows property owners to deduct the cost of property wear and tear over time. However, when a property is sold, any depreciation taken is subject to recapture and taxed as ordinary income, usually at a maximum rate of 25%.

Calculation Formula

The formula to calculate the recapture amount is:

\[ \text{Depreciation Recapture} = \min\left(\text{Total Depreciation Taken}, \text{Sale Price} - (\text{Original Property Cost} - \text{Total Depreciation Taken})\right) \]

Example Calculation

For a property purchased at $300,000 with $80,000 in depreciation taken and a sale price of $350,000:

\[ \text{Adjusted Cost Basis} = 300,000 - 80,000 = 220,000 \] \[ \text{Gain on Sale} = 350,000 - 220,000 = 130,000 \] \[ \text{Depreciation Recapture} = \min(80,000, 130,000) = 80,000 \text{ dollars} \]

Importance and Usage Scenarios

Understanding the recapture amount is critical for property investors to anticipate tax liabilities. This calculator aids in estimating the recapture tax before selling a property.

Common FAQs

1. What is depreciation recapture?

   • Depreciation recapture is the IRS reclaiming previously taken depreciation deductions upon the sale of a property.

2. How is recapture taxed?

   • Recapture is generally taxed as ordinary income, capped at a rate of 25%.

3. Can recapture be avoided?

   • Certain strategies like 1031 exchanges may defer recapture tax, but consult a tax professional for specific guidance.