Depreciation recapture example

When considering the sale of an appreciated asset, investors have various things to consider. One thing that affects how much they’re going to earn after the transaction is depreciation recapture.

Depreciation is a valuable tool in tax accounting, allowing investors to lower their taxable income as their assets lose their value.

However, if you sell an asset, like real estate or machinery and equipment, and receive some profit in the process, then the IRS steps in to recapture the tax reductions you enjoyed in the past — hence the term depreciation recapture. 

This concept has a few complexities, and knowing what depreciation recapture entails can help you make better investment decisions.

Realized 1031 has shared a guide, so you can get an in-depth understanding of what it is and how it works. 

What Is Depreciation Recapture?

Let’s say that you have an apartment complex that initially cost $10 million when you acquired it in 2014.

Over the years, you slowly depreciate this real estate asset on account of the wear and tear and the building’s structural integrity an

how does depreciation recapture work

deperciation recapture