Question

When will a taxpayer need to recapture depreciation on listed property, and how is the amount of the recapture determined?

a. Recapture occurs when the business changes its location; the amount is based on the property's fair market value.
b. Recapture occurs when the business switches from bonus depreciation to MACRS; the amount is based on the excess depreciation taken.
c. Recapture occurs when the business use drops to 50% or below; the amount is based on the excess accelerated depreciation over straight-line depreciation.
d. Recapture occurs when the business sells the listed property; the amount is based on the property's original cost.

Answer 1

Recapture of depreciation on listed property occurs when a business sells the property, and the amount is based on the property's original cost.

Step-by-step explanation:

Recapture of Depreciation on Listed Property:

To understand this better, let's break it down. Depreciation is a tax deduction taken by businesses for the wear and tear, deterioration, or obsolescence of their assets over time. Listed property refers to certain types of assets like vehicles, computers, and other equipment that are used for both personal and business purposes.

When a business sells such listed property, it may be required to recapture or pay back a portion of the depreciation deductions previously claimed. This recaptured amount is considered taxable income and is reported on the business's tax return for the year of the sale.

The amount of recapture is determined by calculating the excess of accelerated depreciation taken over the straight-line depreciation that would have been allowed, from the time the property was placed in service until the time of the sale. This excess amount is then added back to the business's taxable income.