What Depreciation and Amortization Must Be Recaptured
The amounts that must be recaptured as ordinary income include the following, among others:
Ordinary depreciation deductions, and the special 30% and 50% depreciation allowances, that can be taken the first year property is placed in service,
Amortization of the costs of acquiring a lease, improvements you make on property you lease, pollution control facilities, and reforestation expenses,
Amortization of section 197 intangibles, which include goodwill, patents, copyrights, formulas, licenses, permits, franchises, and trademarks,
Section 179 deduction, for the election to recover all or part of the cost of an asset in the year it is placed in service,
Tax deductions taken for the costs of removing barriers to disabled or elderly persons, and
Reductions in the basis of assets for the investment tax credit.
Section 1250 Property
Depreciation may also have to be recaptured on Section 1250 property - depreciable real property, including leaseholds if they are subject to depreciation. The amount that has to be recaptured as ordinary income is the additional depreciation allowed or allowable. Additional depreciation includes accelerated depreciation and the special 30% or 50% depreciation allowance that can be taken the year the property is place in service.
If you hold the property longer than one year, additional depreciation is the amount by which the actual depreciation you deducted, or could have deducted, exceeded the amount of depreciation calculated under the straight-line method. If you hold the property for 1 year or less, all the depreciation is additional depreciation.
Depreciation deductions taken by another person are included in the carryover basis when that person transfers the property to you. So your additional depreciation on section 1250 property that would have to be recaptured as ordinary income would be the additional depreciation taken by the previous owner and by you as the current owner, if you sell or exchange the property and have a gain.
Other Sections
Other types of property subject to the recapture rules, that are included on Form 4797 are:
Section 1252 property, which is farmland held less than 10 years, on which soil, water, or land-clearing expenses were deducted,
Section 1254 property, including intangible drilling and development costs, exploration costs, and costs for developing mining operations, and
Section 1255 property, which is cost-sharing payment property described in section 126 of the Internal Revenue Code.