real estate/capital budgeting queries

is depreciation recapture only in the real estate section? i.e. not in capital budgeting. what does the recapture element of the real estate discount rate (one of them) capture? i read about it in CFAI but it was so confusing… i went to internet and it said to adjust for wasting asset. but real estate isn’t a wasting asset like oil/gold well/mine… also saw related to sinking fund. but that shouldn’t raise the discount rate, at least i don’t think so. thanks in advance!!

I agree that it is a bit confusing bur as far as i have understood this has nothing to do with capital budgeting ie keep the concept to the real estate qs if they show up.

westbruin Wrote: ------------------------------------------------------- > is depreciation recapture only in the real estate > section? i.e. not in capital budgeting. > > what does the recapture element of the real estate > discount rate (one of them) capture? i read about > it in CFAI but it was so confusing… i went to > internet and it said to adjust for wasting asset. > but real estate isn’t a wasting asset like > oil/gold well/mine… also saw related to sinking > fund. but that shouldn’t raise the discount rate, > at least i don’t think so. > > thanks in advance!! Real estate is allowed to be written off for tax purposes. When you sell the asset you have to recapture any depreciation that you took in excess of economic reality. So if you bought real estate for 100 and wrote off 50 and then sold the asset for 200…you have recapture 50 at the same tax rate you wrote it off at and the rest is taxed at capital gains rates.