Depreciation recapture refers to the process of collecting income tax on gains made through the sale of depreciable property, where deductions for accelerated depreciation exceed via recapture in accordance with Section 1250 of the Internal Revenue Code.
Excess accelerated depreciation refers to the accumulated difference between accelerated depreciation claimed for tax purposes and what straight-line depreciation would have been. It's typically recaptured as ordinary income upon sale instead of receiving more favorable capital gains treatment.
The holding period in real estate refers to the duration of time an investor retains ownership of a property. This interval plays a crucial role in determining the financial outcomes and strategies of the investment, such as potential tax implications, capital appreciation, and cash flow management.
Recapture of depreciation is a tax provision where the IRS recovers depreciation deductions upon the sale of an asset, often leading to significant tax implications for the property owner.
Section 1231 of the Internal Revenue Code pertains to assets used in a trade or business. Gains on Section 1231 assets are generally taxed at capital gains rates, except for depreciation recapture, while losses are tax-deductible as ordinary income.
Section 1245 of the Internal Revenue Code (IRC) pertains to gains from the sale of depreciable personal property and mandates that depreciation recapture occurs, treating a portion of the capital gains as ordinary income.
Trade or business property, as referenced in Section 1231, refers to property used in a trade or business activity that can provide tax benefits upon sale or exchange. Such properties are subject to specific tax regulations that can impact depreciation and capital gains treatment.
