What does "recapture" mean in the context of depreciation deductions?

In the context of depreciation deductions, "recapture" specifically refers to the inclusion of previously deducted amounts back into taxable income when an asset is sold or disposed of. This process is essential because it ensures that any tax benefits received through depreciation are appropriately accounted for when the economic benefit of the asset is realized upon sale.

When an asset is sold for more than its adjusted basis, the Internal Revenue Service (IRS) treats the portion of the gain that corresponds to the depreciation taken as ordinary income, rather than as capital gain. This means that the taxpayer may have to "recapture" this portion of the depreciation previously claimed, resulting in an increase in taxable income for that year.

This concept ensures that taxpayers cannot benefit doubly from depreciation deductions—first through reduced income taxes during the years they own the asset and then later by avoiding taxes on the gain realized when they sell it. Thus, the correct response accurately reflects this essential tax principle.