Depreciation Recapture

When you sell property for more than its adjusted basis, the gain is split by how it arose. Depreciation deductions reduce basis, so selling for more than the reduced basis produces a gain that partly reverses those deductions. For equipment and other short-life property (section 1245), gain up to the depreciation taken is taxed as ordinary income. For buildings (section 1250), gain up to straight-line depreciation is taxed at ordinary rates but no higher than 25%.

Depreciation reduces basis whether or not it was claimed. Depreciation that was allowed or allowable counts, so skipping the deduction does not avoid recapture.