J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

44.1 Depreciation Recaptured as Ordinary Income on Sale of Personal Property

On Form 4797, you report gain or loss on the sale of depreciable property. Gain realized on the sale of depreciable personal property (Section 1245 property) is treated as ordinary income to the extent the gain is attributed to depreciation deductions that reduced basis. In other words, the depreciation deductions are “recaptured” as ordinary income. If gain exceeds the amount of depreciation subject to recapture, the excess may be capital gain under Section 1231 (44.8).

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Caution

Dispositions Other Than Sales

Recapture rules affect gifts, charitable donations, and inheritances of depreciable property (44.4), as well as like-kind exchanges and involuntary conversions (44.5).

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Gain on the sale of real estate placed in service before 1987 may be subject to depreciation recapture (44.2).

Gain subject to recapture for Section 1245 property is limited to the lower of (1) the amount of gain on the sale (amount realized less adjusted basis) or (2) the depreciation allowed or allowable while you held the property. Generally, the depreciation deduction taken into account for each year is the amount allowed or allowable, whichever is greater. However, for purposes of figuring what portion of the gain is treated as ordinary income under the recapture rules (but not for purposes ...