Law Commons^™

Unifying Depreciation Recapture, Richard L. Schmalbeck, Jay A. Soled

Faculty Scholarship

To achieve fairness and accuracy, an income tax system must accomplish two objectives: allow depreciation deductions for the erosion in the value of assets used to produce income, and correct errors that may result from excessive depreciation allowances. The Internal Revenue Code currently fares well in accomplishing the first objective but conspicuously fails to achieve the second.

One of the two main depreciation corrective mechanisms is embodied in Internal Revenue Code § 1250. This section requires that upon the disposition of depreciable real estate used in a trade or business, a portion of the gain that reflects the taxpayer’s prior …