Corporations Selling Depreciable Real Property

Oct 13, 2025 by talynt.org 126 views

Introduction

When it comes to selling depreciable real property, corporations are subject to special recapture provisions. These provisions are designed to ensure that corporations pay their fair share of taxes on the gain from the sale of such properties. In this article, we will delve into the specifics of these provisions, focusing on the recapture of ordinary income.

Corporations Selling Depreciable Real Property

Corporations selling depreciable real property are required to recapture as ordinary income the lesser of two amounts:

25% of the recognized gain: This is the first amount that corporations must recapture as ordinary income. The recognized gain refers to the gain realized from the sale of the property, minus any depreciation or amortization claimed on the property.
100% of the depreciation: This is the second amount that corporations must recapture as ordinary income. The depreciation refers to the amount of depreciation or amortization claimed on the property over its useful life.

Example

To illustrate this concept, let's consider an example. Suppose a corporation sells a depreciable real property for $100,000, which is a recognized gain of $50,000. The corporation has claimed $20,000 in depreciation on the property over its useful life. In this case, the corporation would be required to recapture as ordinary income the lesser of:

25% of the recognized gain: 25% of $50,000 = $12,500
100% of the depreciation: $20,000

Therefore, the corporation would be required to recapture $12,500 as ordinary income.

Conclusion

In conclusion, corporations selling depreciable real property are required to recapture as ordinary income the lesser of two amounts: 25% of the recognized gain or 100% of the depreciation. This provision is designed to ensure that corporations pay their fair share of taxes on the gain from the sale of such properties. By understanding these special recapture provisions, corporations can better navigate the tax implications of selling depreciable real property.

Key Takeaways

Corporations selling depreciable real property are required to recapture as ordinary income the lesser of two amounts.
The first amount is 25% of the recognized gain.
The second amount is 100% of the depreciation.
The corporation must recapture the lesser of these two amounts as ordinary income.

Frequently Asked Questions

What is the purpose of special recapture provisions? The purpose of special recapture provisions is to ensure that corporations pay their fair share of taxes on the gain from the sale of depreciable real property.
How do corporations calculate the recapture amount? Corporations calculate the recapture amount by determining the lesser of 25% of the recognized gain or 100% of the depreciation.
What are the tax implications of recapture? The tax implications of recapture are that the corporation must pay ordinary income tax on the recaptured amount.

Additional Resources

IRS Publication 946: This publication provides guidance on how to calculate depreciation and amortization for tax purposes.
IRS Form 4562: This form is used to report depreciation and amortization on tax returns.
Tax Professional: Consult with a tax professional to ensure compliance with tax laws and regulations.
Special Recapture Provisions for Corporations: A Q&A Guide ===========================================================

Introduction

Special recapture provisions are an essential aspect of tax law for corporations selling depreciable real property. These provisions can be complex and confusing, but understanding them is crucial for corporations to navigate the tax implications of such sales. In this article, we will address some of the most frequently asked questions about special recapture provisions.

Q&A

Q: What is the purpose of special recapture provisions?

A: The purpose of special recapture provisions is to ensure that corporations pay their fair share of taxes on the gain from the sale of depreciable real property.

Q: How do corporations calculate the recapture amount?

A: Corporations calculate the recapture amount by determining the lesser of 25% of the recognized gain or 100% of the depreciation.

Q: What is the difference between recognized gain and depreciation?

A: Recognized gain refers to the gain realized from the sale of the property, minus any depreciation or amortization claimed on the property. Depreciation, on the other hand, refers to the amount of depreciation or amortization claimed on the property over its useful life.

Q: What are the tax implications of recapture?

A: The tax implications of recapture are that the corporation must pay ordinary income tax on the recaptured amount.

Q: Can corporations avoid recapture by claiming depreciation?

A: No, corporations cannot avoid recapture by claiming depreciation. The recapture amount is determined by the lesser of 25% of the recognized gain or 100% of the depreciation.

Q: What happens if the corporation sells the property for a loss?

A: If the corporation sells the property for a loss, there is no recapture amount. The corporation can claim a loss on the sale of the property, but it will not be subject to recapture.

Q: Can corporations claim a loss on the sale of depreciable real property?

A: Yes, corporations can claim a loss on the sale of depreciable real property, but it will not be subject to recapture.

Q: What are the reporting requirements for special recapture provisions?

A: Corporations must report special recapture provisions on their tax returns, using Form 4562. They must also provide supporting documentation, such as depreciation schedules and property records.

Q: Can corporations consult with a tax professional to ensure compliance with tax laws and regulations?

A: Yes, corporations can consult with a tax professional to ensure compliance with tax laws and regulations. A tax professional can help corporations navigate the complexities of special recapture provisions and ensure that they are in compliance with tax laws and regulations.

Conclusion

Special recapture provisions are a critical aspect of tax law for corporations selling depreciable real property. Understanding these provisions can help corporations navigate the tax implications of such sales and ensure compliance with tax laws and regulations. By consulting with a tax professional and staying up-to-date on tax laws and regulations, corporations can minimize their tax liability and maximize their profits.

Key Takeaways

Special recapture provisions are designed to ensure that corporations pay their fair share of taxes on the gain from the sale of depreciable real property.
Corporations calculate the recapture amount by determining the lesser of 25% of the recognized gain or 100% of the depreciation.
The tax implications of recapture are that the corporation must pay ordinary income tax on the recaptured amount.
Corporations can claim a loss on the sale of depreciable real property, but it will not be subject to recapture.
Corporations must report special recapture provisions on their tax returns, using Form 4562.

Additional Resources

IRS Publication 946: This publication provides guidance on how to calculate depreciation and amortization for tax purposes.
IRS Form 4562: This form is used to report depreciation and amortization on tax returns.
Tax Professional: Consult with a tax professional to ensure compliance with tax laws and regulations.