We often talk about special capital gains treatment for real or personal property we sell. Reality is that real and personal property are not capital assets and don’t fall under these rules. Real property is given favorable gains treatment under section 1231 instead.
Almost from the beginning congress decided that because depreciation can be used to offset ordinary income that special rules should be in place to treat any future gain as ordinary as well. Since the 1960s there have been depreciation recapture rules.
What is depreciation recapture?
Depreciation recapture doesn’t add to a taxable gain it’s a method of determining the tax treatment of any gain. Basically depreciation recapture is a method determining how much of any gain should be treated as ordinary income as opposed to getting a special capital gains treatment.
How it works Continue reading