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Depreciation Recapture on Investment Property

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Junior Member
What is the name of your state?What is the name of your state? Delaware

The phrasing in the IRS rule is "depreciation taken or allowed." I've heard two different interpretations of this. (1) "Allowed" could mean "depreciation you could have claimed but failed or declined to claim." Or, (2) "Allowed" could mean the amount the IRS agreed to after challenge when you originally claimed a higher figure.

The practical difference it makes is if you didn't claim any depreciation in a given year(s). Under the first interpretation, you'd be subject to the recapture rate on depreciation you never claimed, although you could have.

Which interpretation is right/better?


Senior Member
The phrase is depreciation "allowed or allowable", which the IRS interprets as the higher number. The solution to unclaimed depreciation is to file form 3115 and claim catch-up depreciation. However, you must file form 3115 before the end of the calendar year in which you sell the property, so if you sold in 2004, you're stuck.

If you can prove the exact amount of depreciation claimed, you can just recapture what was actually allowed.

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