Depreciation recapture calculated on disposition with gain (1040, 1120C, and 1041)
If there's a disposition of an asset, the amount of
Depreciation allowed
must be recaptured as ordinary income. The entire disposition is outlined on Form 4797, Page 2. The total gain is then broken down into ordinary income and capital gain as follows.- Depreciation allowedis the amount that must be recaptured as ordinary income and is reported on Form 4797, Part II, then transfers to Form 1040, Line 14.
- Any remainder amounts, which is theCost / BasisminusDepreciation allowed, is classified as a capital gain and reported on Schedule D.
