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

44.2 Depreciation Recaptured as Ordinary Income on Sale of Real Estate

All or part of gain on the sale of depreciable real property may be attributable to depreciation deductions that reduced the basis of the property. On Form 4797, gain attributable to depreciation on Section 1250 realty placed in service before 1987 is subject to recapture as ordinary income unless straight-line depreciation was used. The amount of depreciation recapture depends on when the building was placed in service and whether it was residential or nonresidential; see below.

There is no ordinary income recapture for residential rental and nonresidential real property placed in service after 1986 because such properties are depreciated using the straight-line MACRS method (42.13). However, the 30% or 50% bonus depreciation that had been allowed on qualifying New York Liberty Zone real property and 50% bonus depreciation on GO Zone property is subject to recapture on Form 4797. Similarly, 50% bonus depreciation claimed for qualifying property placed in service after December 31, 2007, and before September 9, 2010, or 100% bonus depreciation for property placed in service after September 8, 2010, and before January 1, 2012, or 50% bonus depreciation for property placed in service after December 31, 2011, and before January 1, 2013 (42.20), will be subject to recapture.

To the extent depreciation is not subject to ordinary income recapture, the gain on the sale is subject to the Section 1231 netting rules ...