Question

Individual Tax Questions

a.) explain why Congress requires depreciation to be recaptured on the sale of depreciable personalty under § 1245. What does it mean—“recapture?”

b. There is generally no “recapture” under § 1250. Explain. Then, what is “unrecaptured § 1250 depreciation?”

Answer 1

Answer:

Depreciation recapture is the gain realised by the sale of depreciable capital property that must be reposted as ordinary income for tax purpose. Depreciation recapture is assesed when the sale price of an asset exceeds the tax basis or adjusted cost basis.

Depreciation recapture is the procedure for collecting income tax on a gain realised by a tax payer when the taxpayer disposes of an asset to ordinary income for the taxpayer though depreciation.

This is the reason.

2. An unrecaptured section 1250hain is an income tax provision design to recapture the portion of a gain related to previously used depreciation allowances. It is only applicable to the sale of depreciable real estate. Unrecaptured section 1250 gains are usually taxed at a 25% maximum rate.