1. What does "recapture" refer to? 2. What is the effect of recapture and how do you treat...

Question:

1. What does "recapture" refer to?

2. What is the effect of recapture and how do you treat recapture?

3. At what rate would you tax the recapture (i.e., ordinary or capital gains) and why?

Gains on sales of assets:

A taxpayer has to report a taxable gain on the sale of any asset if the amount received for the asset is greater than the taxpayer's adjusted basis in the asset. The adjusted basis of an asset is calculated by subtracting accumulated depreciation from the original cost of the asset. The accumulated depreciation represents previous deductions a taxpayer was able to take through depreciation expense throughout the life of their asset. Gains on the sale of assets are taxed at special capital gains rates that are typically less than ordinary tax rates, so they are considered favorable to taxpayers.

Answer and Explanation:

1. What does "recapture" refer to?

  • Recapture refers to depreciation recapture, which is the recapturing of previous depreciation deductions...

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Capital Gains Treatments: Definition & Advantages

from Accounting 302: Advanced Accounting

Chapter 12 / Lesson 3
700

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