1031.Exchange INTELLIGENCE NETWORK
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TAX & BASIS

Depreciation

Also called: tax depreciation · depreciation deduction

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PLAIN-ENGLISH DEFINITION

The tax deduction framework that allocates the cost or other basis of qualifying property over its recovery period.

What it means in practice.

Real estate owners may have depreciation deductions that reduce adjusted basis. Exchange transactions can affect how depreciation continues on carryover and excess basis.

Why it matters.

Lower adjusted basis can increase the amount of gain realized when property is disposed of.

Additional notes.

Real estate owners may have depreciation deductions that reduce adjusted basis. Exchange transactions can affect how depreciation continues on carryover and excess basis.

PRIMARY / REFERENCE SOURCES

Read the source material.

irs.gov ↗irs.gov/publications/p946irs.gov ↗irs.gov/publications/p551
CONNECTED LANGUAGE

Related definitions.

Tax & BasisAdjusted basisBasis after increases and decreases required by tax rules.Tax & BasisDepreciation recaptureA general term for tax rules that can cause prior depreciation deductions to affect the character or rate of gain when depreciable property is disposed of.Tax & BasisUnrecaptured Section 1250 gainA category of long-term capital gain generally associated with depreciation taken on Section 1250 real property and subject to special tax-rate treatment.
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