Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Home
  • Accounting, Taxation, and Reporting
  • Business Taxation

Recapture - Explained

What is Recapture in Taxation?

Written by Jason Gordon

Updated at April 8th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

What is a Tax Recapture?

Recapture concerns a situation in which a taxpayer records a tax deduction in one year but must report the amount of deduction as income in a later year.

Back to: Accounting & Taxation

How Does the Recapture of Taxes Work?

Depreciation recapture takes place when the taxpayer sells an asset that has been depreciated. The depreciation resulted in a deduction in one year hat must be recaptured or added back in a later year. The first step in the assessment of depreciation recapture involves the determination of the cost basis of the asset. This is the price that the buyer pays when buying the asset. The adjusted cost basis refers to the difference between the original cost basis and any associated allowable depreciation costs. For instance, Mr. A buys equipment for $10,000 that has a depreciation expense of $2000 per annum. Hence, the adjusted cost basis after a period of 4 years will be $2,000, that is $10,000 - (2,000*4). The depreciation recapture takes place when Mr. A sells the equipment at a profit. If he sells the equipment for $3,000 after 4 years, then his taxable gain will be $1,000 ($3,000 - $2,000). It can seem like that the equipment bought for $10,000 and sold for $3,000 calls out for a loss. However, it is not the case as the profits and losses are based on the adjusted cost basis, rather than the original cost basis. In this scenario, Mr. A should report a recaptured profit of $1,000.


recapture

Was this article helpful?

Yes
No

Related Articles

  • Capital Cost Allowance - Explained
  • Effective Tax Rate - Explained
  • Form 1099 - Explained
  • Loss Disallowance Rule - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand