The 'allowed or allowable' rule
The tax code taxes recapture on depreciation that was "allowed or allowable" — the amount you legally could have deducted, whether you actually claimed it or not. If you skipped depreciation for years, the IRS still treats you as having taken it.
The practical effect
When you sell, your adjusted basis is reduced by all depreciation allowed or allowable, regardless of what you claimed on prior returns. A higher recapture amount combined with no corresponding deductions means you paid more in taxes than necessary every year you skipped it.
How to fix missed depreciation
If you never claimed depreciation you were entitled to, you can file Form 3115 (Change in Accounting Method) to claim a catch-up deduction in the current year. This doesn't reset the clock on recapture — you'll still owe it at sale — but it at least captures the deductions going forward.
Frequently asked questions
Do I owe recapture if I never claimed depreciation?
Yes. The IRS uses the 'allowed or allowable' standard, so recapture is calculated on what you could have deducted, not just what you did.
Should I skip depreciation to avoid recapture later?
No. Skipping it costs you current deductions without reducing the future recapture tax — a pure tax loss.
Can I fix missed depreciation?
Yes, via Form 3115 (Change in Accounting Method), which lets you catch up in the current year.
Sources
- IRS Topic No. 409 — Capital Gains and Losses
- IRS Publication 544 — Sales and Other Dispositions of Assets
- IRS Publication 946 — How to Depreciate Property
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.