# Recaptured Depreciation

Hi, Can’t get my head round this subject. So recap dep is dep taking in anticipation of a decline in asset value which did not happen. If asset appr then all dep is recaptured and if it depr less than acc dep then the difference of selling price and book value is recaptured. Makes sense but P18 Book 4 Royal Arms Schweser the sell price is \$855,716 Cost of sale is (\$60,000) net selling price is \$795,916 Purchase price is \$575,500 less acc dep (\$72,000) gives you \$505,500 So the realised gain on property sale is \$290,216 NOW, why do they subtract \$72,000 again from \$290,216 and use that value to calc long term capital gains tax? I understand why \$72,000 is used as that’s the total depreciation which was never realised but why do you take it away a second time? I would have just calcd the tax on recap dep off the \$72,000 and calcd the capital gain on \$\$290,216. Can someone please explain? Thanks

well man… don’t bother with understang it… just know that “normal dep” equals with recap depr when selling price is higher then purchase price. Amen. I believe there is reasonable explaination in CFAI books for it

This is my second time round, this time round I’m taking some time actually understanding a lot of the principles instead of just learning. I’m still confused tho! If i don’t get a reply on here I’ll check the CFAI books.

of the 290 K calculated - 72 K is subject to depreciation recapture tax, the remaining is subject to the capital gains tax. if you used the full 290K - you would be double counting tax on a portion…

sell price - cost of sales - (purchase price - acc dep) = 290,216 => sell price - cost of sales - purchase price + acc dep = 290,216 = realized gain on property sale since we add \$72,000 acc dep to get to the gain, when calculating tax on gain, we need to separate the realized gain into: 1. depreciation 2. capital gain when the property is sold, we don’t need to depreciate the property every year anymore, so the acc dep becomes part of our realized gain. just a thought…please correct me if i’m wrong. mambovipi Wrote: ------------------------------------------------------- > Hi, > > Can’t get my head round this subject. So recap dep > is dep taking in anticipation of a decline in > asset value which did not happen. If asset appr > then all dep is recaptured and if it depr less > than acc dep then the difference of selling price > and book value is recaptured. > Makes sense but > > P18 Book 4 Royal Arms Schweser > the sell price is \$855,716 > Cost of sale is (\$60,000) > net selling price is \$795,916 > > Purchase price is \$575,500 > less acc dep (\$72,000) > gives you \$505,500 > > So the realised gain on property sale is \$290,216 > > NOW, why do they subtract \$72,000 again from > \$290,216 and use that value to calc long term > capital gains tax? > > I understand why \$72,000 is used as that’s the > total depreciation which was never realised but > why do you take it away a second time? I would > have just calcd the tax on recap dep off the > \$72,000 and calcd the capital gain on \$\$290,216. > > Can someone please explain? > > Thanks