Recapture Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Recapture, written in plain English, along with examples of how it is used.

What is Recapture?

History and Meaning of Recapture

Recapture, in terms of taxation, refers to the process of recovering some or all of the benefits from a tax incentive previously claimed by a taxpayer. It is essentially the recapture of tax depreciation that was taken as a deduction in the past. The Internal Revenue Service (IRS) often requires taxpayers to recapture and report recaptured amounts as ordinary income in the year that triggers the recapture.

In the past, taxpayers were receiving huge tax benefits due to accelerated depreciation, so the recapture system was introduced to recover some of those benefits. The IRS monitors recapture and frequently updates its rules to ensure that taxpayers do not take undue advantage of accelerated depreciation tax incentives. Recapture can apply to various tax incentives, including section 179 and bonus depreciation deductions.

Examples of Recapture

• A company purchased equipment several years ago and took accelerated depreciation on that equipment. This year, they sold the equipment, triggering a recapture of some of the associated deductions taken in previous years.
• An individual takes advantage of a tax incentive and receives a credit for purchasing an electric vehicle. However, two years later, they sell the vehicle before the end of its useful life, triggering a recapture of some or all of the credit they received.

Legal Terms Similar to Recapture

• Depreciation: A reduction in the value of an asset over time due to wear and tear, usage or obsolescence.
• Amortization: The process of spreading the cost of an intangible asset over the asset's useful life.
• Section 1231: A section of the IRS tax code that addresses gains and losses in the sale of business property.