How to Reclaim Depreciation
If you depreciate property used for business purposes, you must reclaim the depreciation when you dispose of the asset. Asset disposition typically occurs when you sell an asset. You get a tax break for depreciation during the time you own the property, but when you dispose of the property, you'll actually add back in the value of the depreciation to offset the asset's sales price. The IRS requires the deprecation recapture to properly figure your gain or loss on the sale.
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Instructions
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Calculate the amount of your prior depreciation. Depreciation is calculated on each tax return that lists the asset. You should have an accumulated depreciation value on your most recent filed return. Add the depreciation taken on that return for the asset plus your accumulated depreciation. The result is the depreciation you must recapture.
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Calculate your basis in the property. Generally, basis includes the amount you paid for the asset. Your basis may increase for items such as the costs of improvements or amounts paid for damage repairs.
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Determine the sales price of the asset. If the property was sold under contract, the sales price should be itemized in your closing paperwork.
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Reduce your basis by your accumulated depreciation to determine your adjusted basis.
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Subtract your adjusted basis from the sales price. The result equals your gain or loss on the sale.
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Use the information to complete IRS Form 4797, Sales of Business Property. Attach Form 4797 to your federal tax return.
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