Depreciation Recapture

Definition

Depreciation recapture is the IRS mechanism that taxes the gain from selling a depreciated asset at ordinary income rates rather than capital gains rates, to the extent depreciation deductions were previously taken. For real estate, Section 1250 recapture applies to buildings, taxing the accumulated depreciation at a maximum rate of 25%. This often catches real estate investors off guard when they sell a property that has been held and depreciated for many years.