Recapture - Nothing to be Afraid of!
"Recapture" is an important consideration in any Tax Planning process. Recapture is nothing more than the IRS requiring the taxpayer pay ordinary tax rate rather than capital gains rate on the gain attributed to depreciation deductions when selling your property. Simply stated, if you sell your property at a gain, you will pay back the depreciation taken on the property - up to the amount of the gain - at an ordinary tax rate. This is true for "Real Property" (1250 property) as well as "Personal Property (1245 property).
Thus, you have basically received an interest free loan from the Government through depreciation deductions; and if you make money on this when selling the property, the Government is requiring you to pay ordinary tax rate which you would have paid anyway. If properly planned it is still a win-win situation for the Commercial Property Owner! |