DEPRECIATION RECAPTURE

Running Head : Accounting

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Depreciation Recapture

Depreciation recapture refers to gains that are associated with disposal of a property whose value has been depreciated for tax purposes . A significant depreciation recapture is derived when the sale value is significantly higher than the accrued depreciation value . The essence of capturing this depreciation comes as a part of the profit through the reduction of the book value cost . There has been a misunderstanding on the tax rate charged over the depreciation recapture . This difference

lies on the method used to calculate depreciation . Straight line method leads to a 25 percent federal tax while any excess on the accelerated method over the straight line method is taxed using normal tax rates (ftec .com , n d . However , any extra gains accruing from increase in property value due to appreciation is charged at a maximum tax rate of 15 percent

In cases where the property is swapped with another , the gain from the recapture is transferred into the replaced property hence making clearing its tax chargeable at that moment . However , if the property is later sold , the property attracts an equivalent tax on the depreciation recapture . There are chances of where one can afford to defer taxes Property exchange therefore stands as a significant way of safe guarding gains which reduces the amount taxable from direct sales

These gains can not however be sustained forever . This is because , in an event of a death of an owner of a given property...