J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Recapture

Certain write-offs you may take can come back to haunt you. The benefit you enjoy now may have to be repaid at a later time. For instance, if you claim certain depreciation on business assets (explained in Chapter 14)—a write-off of the cost of the assets over a set time—you must recapture the benefit when you dispose of the assets. Recapture in some instances is merely a matter of recharacterizing gain—instead of capital gain, the recapture amount is treated as ordinary income. However, in other instances, recapture means reporting income that would not otherwise be due.

Recaptured Depreciation

If you claim accelerated depreciation on realty (generally this applies to realty placed in service before 1987), then you must recapture (report as ordinary income) the portion of gain relating to the excess of accelerated depreciation.

• For equipment and other personal property, recapture all of depreciation claimed (to the extent of gain).
• For nonresidential realty depreciated under The Accelerated Cost Recovery System (ACRS) (placed in service after 1981 and before 1987), recapture the excess of ACRS depreciation in excess of straight-line depreciation. Different rules apply to pre-ACRS property.

Unrecaptured Depreciation

If you claim a home office deduction for business use of a portion of your home (these rules are explained in Chapter 18), you do not have to apportion your gain; in effect, you can apply the home sale exclusion to your entire gain. However, all depreciation ...